eCONomics Part V: IN THE YEAR 2024 IF MAN IS STILL ALIVE

.. enter the ‘Cuban’ missile crisis, only this time it’s on steroids

With thanks to our own Colin Maxwell of New Zealand.

Please see: Part 1 ; Part 2 ;  Part 3 ; Part 4

NB – AN EXPLANATION OF ACRONYMS/TERMS/ETC used in the article are listed at the end of this discussion piece.

1. Introduction

My sincere apologies for this delay in my sequel. I picked up a very nasty bug and at the same time experienced some major computer glitches.

In the mean time it is my grim conclusion that the Western world won’t escape this gigantic financial hole it has dug for itself without going through a major systemic financial meltdown. Only with a tragic event will the critical mass of society actually rise up to demand the massive reform that is required to have any hope of recovering functional and sustainable economies.

I see no political escape from of the U$ train wreck (described earlier in eCONomics Part I) because the various components of the uni-party have almost identical financial and foreign policies. None of the POTUS candidates even bother to address the financial situation, let alone offer up any remotely workable solutions.

So too, history is massively against any hope of a successful independent POTUS, and the fact that RFK Jr is going to take votes from both sides of the ‘aisle’ means that IF the election actually takes place, Trump will be almost certainly be the winner.

This is despite the fact that he is a proven compulsive liar who still brags about his godfather role in the development of the experimental mRNA killer toxins. He also showed his true colours when he backstabbed Assange – whose published revelations paved the way for Trump to beat the truely dreadful and dangerous Hillary Clinton in 2016. What a truly sad commentary when a truly inept braggart like this is the only option available that would avoid a second term by the appalling ‘Crash Test Dummy’.

However, as the old cliche states – “seven days is a long time in politics” – however seven months is practically an eternity – especially given the dire financial situation and the multiple global military flash points.

Also, how soon could the pitchforks and riots manifest in the streets, and subsequently give the Biden camp the excuse they crave to declare Martial Law, in doing so creating the perfect opportunity to further tighten the noose on society’s freedom, by implementing a retail CBDC and it’s associated social credit controls?

The other possible titles I considered were…

KEEP PRINTING OR CRASH – nope, it’s keep printing and crash anyway.

IMMINENT GOLD REVALUATION – a worthy title too, as arguably this is the most significant single factor in a perfect storm of events that will be the end of the reign of the Western hegemon.

2. A Collision Of No Less Than Twelve Events In A Perfect Storm

#1 The Ukraine debacle exposing how utterly demented the U$ and NATOstan are in their hegemonic lust for control of resources, perpetual war and general mayhem. The comprehensive loss of yet another war is bad enough, but their attempts to hide this loss and extend the blood bath, makes NATOstan’s actions even more reprehensible.

#2 The Palestinian debacle – and Israel and the U$’s desire to genocide their population. The U$ and Israel play good cop, bad cop, whilst they carry on deliberate and overt genocide. Both countries have effectively torched the tiny skerrick of diplomatic capital they had left.

Many Palestians are already at level 5 starvation and yet this is being used as a weapon – even using aerial food drops as bait with Israeli troops stationed nearby with machine guns to gun them down as they try to retrieve food for their starving families.

#3 The build up in the tensions in the South China Sea and Warshington’s brazen prediction of a full scale war.

#4 The general weaponisation of the dollar and Western based payment systems.

#5 The idiotic 16,000 sanctions wrought on Russia – a reminder to the entire planet that this strategy doesn’t work – it only succeeds in providing a huge extra helping of bad karma for the voracious Western Hegemon.

#6 An announcement of a revaluation of gold by BRICS+ is imminent – as soon as this happens the Western fiat currencies will begin to implode – this as a corollary, with a return to hard backed currencies, may well turn out to be the single most crippling factor of all.

#7 The stability of the BRICS+ multiple commodity trade-only instrument will be
extremely compelling – not only will it be hard backed by gold, more than likely silver, and a host of other commodities (perhaps, as many as 20), but the smoothing effects of this system will come into effect and give countries the confidence to use it.

#8 The cooperative nature of the member nation’s currencies will encourage their use and an increasing percentage of trade will be done using swaps and bartering of goods for goods.

#9 Gresham’s Law will kick in – countries/people will liquidate their weak money and hold as reserves money which is regarded as strong and stable. This is when the exponential ramp up in hurt for the West will begin.

#10 The fact that it is almost impossible to miss the fact that Uncle $laughter has deliberately set about trying to destroy Europe – this gradual realisation by Mainstreet Europe, as the reality finally bites in, will never be lived down. Kissinger’s prophetic words should ring in the ears of the entire RoW.

#11 The absolutely disgraceful treatment of LatAm and the explicit Monroe Doctrine of raping this entire continent – and no more shocking example of the last century of atrocities than the sellout of the immensely resource rich Argentina by the utterly feckless Milei to Western imperial plutocrats. Refer – General Richardson’s recent visit to Buenos Aires – I just hope that our friend Jorges is travelling OK amongst all of this madness.

#12 The highlighting of the centuries of the raping of the African Continent by Western Imperialism – the most recent and habitual protagonist being, you guessed it – Uncle $laughter.

3. Gold Stacking By The Global South

this constitutes the twilight of the fiat currency system

The World Bank reports that central banks bought 1037 tons of gold bullion in 2023, which is only slightly below the all time record set in 2022.

The astute entities, particularly in the ME and Asia are realising that keeping funds in U$ dollars is becoming too much of a liability.

Foreigners who own $14 trillion in stocks in the U$ and a further ~$8 triilion in treasuries are slowly waking up to the fact that they are not even the legal owners of this paper…. see eCONomics Part (I), section (iii) ‘The Great Taking’.

This stacking of bullion is enabled by the U$’s vain obsession of trying to protect the value of its currency. The Global South will continue to stack as the U$ facilitates the suppression of the real price with the COMEX.

It seems incredible, but the MSM has only just managed to figure out that the strength in gold is due to massive central bank buying. Apparently the casino house didn’t see these macro trends either – they were all to far too busy chart-painting and gambling to even look at the underlying fundamentals of why gold and silver were about to break out and head for the hills.

This subject was extensively covered in eCONomics Part (I) and so I won’t regurgitate it here.

Paraphrased from the one and only Alasdair Macleod…

“Money is the back stop of credit, which is why gold is so important. The dollar is not money, it is credit – it relies on the faith we have in the U$ Govt (oh dear!).

This is what is likely to come unstuck, as the entire colossal credit system begins to fall down around our ears.

Insurance has to be money in this event – not BitCoin, but gold. Silver has been demonetised, remaining very much an industrial metal controlled by industrial interests, particularly within China.

However, this control may well be slipping with the Indians buying so much silver, with deliveries on the COMEX this year over 1200 tons. As China loses control of the silver price its monetary characteristics will return.

When credit really does fall apart, people will go for anything tangible – obviously this does not include financial securities – in them there is no protection against inflation because they are in themselves credit which will get swept up in the collapse.”

4. Gold, Silver, or Bitcoin — which one(s) will Dah Fed concentrate on manipulating now?

Recently, the ‘cost to borrow’, meaning the cost to short sell GLD shares began to rise sharply from just under 40 BPS (0.4%) by almost 3x to a mind-numbing 1.06%.

Remember too that these borrowed shares ultimately have to be paid back as the price rises further the borrower is left in a ever deepening hole -who on earth would take this risk? – So who is the ‘who’ then? – it has to be dah Fed itself because no TBTF first tier bank compliance team would allow these huge high risk naked short bets to be made.

As the brilliant Andy Maguire recently stated – (paraphrased)…

“Why – because they are attempting to swamp the gold rally by adding borrowed supply in the hope that officials can repay these borrowed supply bets at a lower price. Yes we know that the Fed can print as much as they like, but this is all set to backfire spectacularly.

The Fed is the only remaining CB betting against a higher gold price and they are reduced to deploying the only tool in the tool box, which is using leveraged paper gold to try to chart paint the top of the rally.

Meanwhile, almost every other CB is swapping their excess dollars for physical gold and capitalising on being able to convert the COMEX synthetically driven supply prices into deliverable NSFR compliant bullion through the EFT mechanism. The Fed is now severely limited as to how many CTAs they can suck into puking up their long term bets to repay these GLD shares.”

The Fed is the only remaining global CB (dumb enough) to bet against a higher gold price and to use leveraged paper gold to continue to manipulate the price. Meanwhile any other CB, with half a brain, is swapping their excess dollars for physical gold.

Basically, available gold stocks have contracted ~50% in 4 years and many CTA positions are no longer rinse-able. The ringleaders now appear to be shifting their attention to injecting instability into Bitcoin, and phasing out gold and silver price fixing, as they become more and more badly burnt whilst the organic price discovery process advances.

Clearly, it is far more profitable to play around with cryptos than to have to eventually cough up gold bullion, which is ultimately NSFR compliant, and physically deliverable, leaving them in a deeper and deeper hole.

It is much easier just to print cash to bale themselves out, as their ability to print cash is virtually limitless – as opposed to eventually having to cough up physical gold that they don’t hold anyway.

5. Silver — massive extra demand for silver, notably in India and China.

We now witness an explosion in silver demand for use in the solar industry particularly in India, but it is strong in China too. India’s solar module production demand is likely to grow by ~60% by 2025.

This market requires thousands of extra tons, but the demand is also ramped up even further by the relatively higher price of gold – another perfect storm leading to unprecedented physical demand.

The extra thousands of tons of demand for silver will inevitably force the price much higher during 2024 – this cannot be contained by the bankster’s usual playbook of tricks.

Since the 1930s the gold to silver mining production ratio has stayed remarkably close to 8:1.

The Exeter Pyramid helps us to gain a perspective on how massively undervalued gold and silver bullion is relative to other financial assets and real estate.

When you look at the risk arrows which clearly indicate that there should be movement into gold and silver bullion, at the very least as an insurance hedge, it reveals just how huge the natural impending price discovery process could be.

Ownership of precious metals in the U$ are really only the equivalent of a pimple on an elephants arse – it represents the equivalent of a pitifull 0.5% of their assets.

As Andy Schectman points out – what happens when the population finally flicks up as to the extent of the great taking and if they advance their PM holdings to even a lowly 5%? – that alone would amount to a 10x increase in demand.

This is much like the COMEX debacle where the open interest is 1750% higher than the amount of bars held in their vaults. The dirty word is rehypothecation – meaning that most entities will have no access to physical gold, just as they won’t with silver.

The planned Moscow Metal Exchange could at any time set a relatively modest price for gold at $3000, and silver at say $50-$100. Just like that all of the Western markets could arbitrage straight to the East setting a real price – this would break the COMEX and the London Metal Exchange, and immediately break the dominance and the manipulation by the Western players.

6. Unsustainable Levels of Public Debt – the Destruction of the Middle Class

Daniel Lacalle wrote an excellent piece which was published on ZH April 9, 2024…

“When the fiscal position is unsustainable, the only way for the state to force the acceptance of its debt—newly created currency—is through coercion and repression.

A state’s debt is only an asset when the private sector values its solvency and uses it as a reserve. When the state imposes its insolvency on the economy, its bankruptcy manifests in the destruction of the purchasing power of the currency through inflation and the weakening of real wage purchasing capacity.

The state basically conducts a process of slow default on the economy through rising taxes and weakening the purchasing power of the currency, which leads to weaker growth and erosion of the middle class, the captive hostages of the currency issuer.

Of course, as the currency issuer, the state never acknowledges its imbalances and always blames inflation and weak growth on the private sector, exporters, other nations, and markets. Independent institutions must impose fiscal prudence to prevent a state from destroying the real economy. The state, through the monopoly of currency issuance and the imposition of law and regulation, will always pass on its imbalances to consumers and businesses, thinking it is for their own good.

The government deficit is not creating savings for the private economy. Savings in the real economy accept public debt as an asset when they perceive the currency issuer’s solvency to be reliable. When the government imposes it and disregards the functioning of the productive economy, positioning itself as the source of wealth, it undermines the very foundation it purports to protect: the standard of living for the average citizen.

Governments do not create reserves; their debt becomes a reserve only when the productive private sector economy within their political boundaries thrives and the public finances remain under control.

The state does show its insolvency, like any issuer, in the price of the I.O.U. it distributes, i.e., in the purchasing power of the currency. Public debt is artificial currency creation because the state does not create anything; it only administers the money it collects from the same productive private sector it is choking via taxes and inflation.

The United States debt started to become unsustainable when the Federal Reserve stopped defending the currency and paying attention to monetary aggregates to implement policies designed to disguise the rising cost of indebtedness from unbridled deficit spending.

Artificial currency creation is never neutral. It disproportionately benefits the first recipient of new currency, the government, and massively hurts the last recipients, real wages and deposit savings. It is a massive transfer of wealth from the productive economy and savers to the bureaucratic administration.

More units of public debt mean weaker productive growth, higher taxes, and more inflation in the future. All three are manifestations of a slow burn default.

So, if the state can impose its fiscal imbalances on us, how do we know if the debt it issues is unsustainable?
First, because of the units of GDP created, adding new units of public debt diminishes rapidly.
Second, the erosion of the currency’s purchasing power persists and accelerates.
Third, because productive investment and capital expenditure decline, employment may remain acceptable in the headlines, but real wages, productivity, and the ability of workers to make ends meet deteriorate rapidly.

Today’s narrative tries to tell us that nothing has happened when a lot has. This includes the destruction of the middle class and the deterioration of the small and medium enterprise fabric in favour of a rising bureaucratic administration that consumes higher taxes but still generates more debt and deficits. It does end badly. And all empires end the same way, with the assumption that nothing will happen.

The currency’s acceptance as a reserve does come to an end. The persistent erosion of purchasing power and declining confidence in the legally imposed “lowest risk asset” are some of the red flags some are willing to ignore, maybe because they live off other people’s taxes, or because they benefit from the destruction of the currency through asset inflation. Either way, it is profoundly anti-social and destructive, even if it is a slow detonation.

The fact that there are informed and intelligent investors who willingly ignore the red flags of weakening the middle class, declining purchasing power of the currency and deteriorating solvency and productivity shows why it is so dangerous to allow governments to maintain fiscal imprudence.

The reason why government money creation is so dangerous is because the government is always happy to increase its power over citizens and blame them for the problems its policies create, presenting itself as the solution.”

The CPI – what Rick Rule refers to as the CP LIE – doesn’t include food or fuel which makes it an utterly contrived index. Worse still, it does not even include taxes and yet this is the biggest expense of all – for many it is larger than food, shelter, energy and transportation combined.

Rick notes that for people like himself and the basket of goods he buys, and adding in taxes, it means he is losing around 7% per year on his money.

On a ten year treasury with a coupon value of say 4.1%, which sounds like one hell of a lot better than the 2.0% of days gone by, you are being scammed. If you work out the true rate, it is a disgraceful and debilitating negative 3.9% every year for 10 years compounded on your original investment.

Even the lower echelon within the Fed admit to Rick that the real inflation rate is far higher than what the public is led to believe – this means that there is absolutely no way that they could cut rates, because this would cause even more dramatic loses for depositors and bond holders.

Clearly, the institutional view within the Fed is to not reduce the rate, but within Congress there is a bipartisan desire to reduce rates and particularly within the Biden admin who desperately want to win the next election.

7. BRICS+10 — BRICS+16

onwards and upwards – this subject was discussed extensively back in eCONomics Part (III) of the sequel

Sergei Glazyev’s white paper has received the green light from the Kremlin’s Yuri Ushakov (Putin’s Assistant for Foreign policy) and will be presented to the Kazan summit May 14-19. I will try to do a proper update shortly after we hear the outcome of this important summit.

In the meantime the BRICS+ progress remains relentless, especially given that the BRICS+10 control the lion’s share of the global energy complex – the scale of the de-dollarisation process is poised to reach a completely new level. This is an utterly terrifying and self- inflicted situation that the Western hegemon finds itself in – they dug their own hole and are still digging.

We are now witnessing the creation of an immense socioeconomic-security bloc that will have more than 90% of global wealth and resources to back it up.

8. Don’t Blame COVID for the Looming Meltdown

— in fact the u$ economy was on the rocks well before any of us had even heard of covid – see the implosion of repo market in August 2019 on Trump’s watch.

Suffice to say the repo market that completely imploded on Trump’s watch when none of the banks trusted one another’s collateral any longer – even treasuries were not trusted any longer, as it became known that there could be multiple claims on them too. The repo market never recovered, and now sits at around $2 trillion as reverse repo – obviously the banks don’t want money on the street, and would rather hand it over to the Fed overnight.

Some of the big players see what is coming down the pipeline now too, and they are sucking PMs out of the exchanges.

NB – the U$ dollar is worth only 3 cents now compared to its value when the ‘Creature from Jekyll Island’ was incorporated. The next step is the road to a big fat ZERO cents worth, which is where all fiat ends up sooner or later.

There is also the opportunity for the PBS and FTT models to be deployed in sovereign countries where they can be introduced without hegemonic retribution and intimidation.

Within the BRICS+ block, it will be a case of letting 190 flowers bloom with the sharing of the success stories within so that the models that work in a particular set of circumstances can be embraced by other regions/countries with the confidence of them being already proven working models.

This would be an ongoing organic process that involves continued decentralisation and bottom up governance in a mix of cooperative endeavour that works to develop the real economy and to create permanent wealth for all of society, rather than just permanently feathering the nests of the parasitic financial casino economy.

I’m not going to label the new paradigm with any of the existing ism’s because this will be something completely novel. There should really be only one central maxim necessary – ‘treat others as you would wish to be treated yourself’ – that’s it!

The ongoing transition should be be a gradual orderly and organic evolution as new models prove their worth in the real world leading to a renaissance of the true human spirit.

9. The Hegemon’s Rapidly Deteriorating Financial State

On current trends the Biden Admin looks set to increase the existing debt of $34.5 trillion by $7.3 T to a mind-numbing $41.8 trillion.

If they could foist a retail CBDC on the country, then there are effectively no limits as to how low they can push interest rates. Negative rates could be invoked to eat up principle. Imagine that, when they have already destroyed 97% of the purchasing power of the dollar.

Using the existing commercial banks for the retail account doesn’t make CBDCs any more palatable as they would simply be using the commercial banks to distribute their policy, whilst achieving much the same effect as every man and his dog having a personal bank account at the Fed.

It is impossible for me to imagine any scenario where a retail CBDC is desirable

… but the absolute worst case is if it was administered as a retail account at the central bank in the case of the farcical Fed model, where that entity is 100% owned by a cartel of thieving and parasitic private banksters.

Even in a highly developed and extensive public utility banking system retail CBDCs would be a completely unworkable disaster. They would by definition, completely preclude a highly competitive banking system where a multitude of banks and models all compete with the result being beneficial interest rates and a high standard of customer services for society at large.

Retail CBDCs would be tantamount to the Soviet era Gosbank model where for ~70 years there was only one banking entity in the entire country. The result was as disastrous as it was predictable.

Even more alarming is the fact that the U$ FDIC is essentially trying to guarantee ~$20 trillion of deposits with a fund of a minuscule $121.8 billion – that amounts to a truly farcical 0.5 cents insurance on the dollar.

Even Bloomberg admits the fact that with $929 billion of CRE debt becoming due in the next 9.5 months, this could potentially topple hundreds of U$ banks.

10. BITCOIN — A Trojan Horse? — rolled out in during the Lehman debacle

QE started then – TPTB endeavoured to have everything looking as normal as possible so that the public was oblivious to what was going on.

As a rule people who go for gold, silver, and cryptos have the same wish – ie, to operate outside the main system, but does bitcoin really belong in that category?

Surely bringing in a Bitcoin ETF is rendering it into the casino system anyway. Initially they were very appealing to the libertarian who sees the debasement of fiat and is looking for an alternative – but aren’t crypto currencies technically fiat anyway? This is made even more precarious when there are ~10,000 different crypto currencies.

Perhaps we all need to consider the fact that this might have been a cunning plan to get digital currencies out and about in the public domain and normalised in the minds of society at large.

Who was Satoshi Nakamoto anyway, the so-called author of the original white paper and who devised the first blockchain database? Supposedly the work began in the second quarter of 2007, and the domain name bitcoin.org was registered in August 2008.

He allegedly continued in the development of the software until mid-2010 before handing over control of the source code depository and domains to various entities, ending his recognised personal involvement in the project.

According to Wiki, Nakamoto had some $73 billion worth of Bitcoin in 2021, making him the 15th richest person on the planet.

Given that the Japanese term ‘satoshi’ can mean ‘intelligent’ and ‘nakamoto’, ‘central’ was there a playful suggestion behind the name as to who was really behind the scene – ‘Central Intelligence’? – what a horrible thought.

Is this just another ploy to keep money from going into gold and silver and exposing yet another dying fiat currency.

https://m.youtube.com/watch?v=lBo_mVV81n8

11. mRNA Toxins — Another Extremely Bearish Factor 

The massive rate of toxic mRNA jabs deployed in Western counties is an extremely depressing subject, but it would be remiss to not mention this as another giant debacle that will help seal the hegemon’s fate and virtually guarantee a debilitating debt death spiral for much of the West

Ed Dowd’s numbers suggest that globally ~ 2.2 billion people have been either killed or are permanently disabled by the toxic jab roll-out – that’s the same one that Trump still brags about.

97% of the US military were jabbed and their own data shows cancer rates are up ~1000%. Heart disease is up 970% in the US military.

In the UK, 18-39 year olds, jabbed 4 times are 318% more likely to die than their unjabbed contemporary control group.

The German Govt recently admitted that there was no pandemic and that figures demonstrate that the fully jabbed on average surrender 25 years of their life.

In the U$, CDC data revealed that each jab increased mortality by 7%.
Highly jabbed regions showed ~15% higher mortality than 2021.
2 doses and 3 boosted were 35% more likely to die in 2022 than 2021.
By contrast, the unjabbed were no more likely to die in 2022 than 2021.

This will have a disastrous effect on productivity, as not only is the fully productive work force dramatically depleted, but the care of the seriously jab injured will soak up even more labour resources and other expenses.

12. Wrap Up

Oh, and I just located some good news, albeit though, very much confined to the Global South realm. There is a much lower level of debt in the RoW and developing economies, compared to the ravenous NATOstan – it is completely self evident even within the figures released by that dreadful IMF creature…

2022 IMF DATA – % of debt to GDP
World 238%
Advanced’ economies 277%
Euro Area 254%
UK 252%
U$ 273%
Emerging market economies 191%
Others 124%
Low income developing countries 88%

In fact this debt could become almost negligible if the BRICS+ in unison, gave the economic Western hitmen the middle finger salute in all cases where they have made deliberately cynical, unpayable, and predatory loans in the first place.

The new socio-economic paradigm will be premised on cooperative goodwill and mutual progress for all participating countries. In this blueprint a minimum of resources will be spent on killing one another, and member nations will enjoy the security provided by an immense bloc that has more than 90% of global wealth and resources to back it up.

There is also the opportunity for the PBS and FTT models to be deployed in sovereign countries where they can be introduced without retribution from the hegemon – the fiscal and monetary aspects of this model were covered in eCONomics Part II.

Within the block it could be a case of letting 190 flowers bloom with the sharing of the success stories within the group, so that the models that work in a particular set of circumstances can be embraced by other regions/countries with the confidence of them being already proven working models.

This would be an ongoing organic process that involves continued decentralisation and bottom up governance in a mix of cooperative endeavour that works to develop the real economy in order to create permanent wealth for all of society – rather than just permanently feathering the nests of the shadowy figures ensconced behind the parasitic financial casino economy.

I’m not going to label the new paradigm with any of the existing ism’s because it will be something completely novel. There should be only one central maxim necessary – ‘treat others as you would wish to be treated yourself’ – that’s it!

Fingers and toes all crossed, the ongoing transition should be be a gradual orderly and organic evolution, as new models prove their worth in the real world in a monumental transition and a complete renaissance of the very essence of the true human spirit.

And how prophetic were the words of the great Leonard Cohen (my all time favourite Canadian, my friend Emerson) in his epic song ‘Anthem’ which took him some 10 years to complete.

Verse 5 nails what is happening right now, as a torrent of countries clamour join the BRICS+ juggernaut…

You can add up the parts
You won’t have the sum
You can strike up the march
There is no drum
Every heart
Every heart to love will come
But like a refugee

Such a tragedy that this great man passed and never got to see this massive event beginning to unfold.

— strap on a good quality headset, crank up the volume, and accompany Cohen on an incredible journey.

Colin Maxwell – April 11, 2024

EXPLANATION OF ACRONYMS/TERMS/JARGON used in the article…
AKA = Also Known As
CB = Central Bank
CTA = Commodity Trade Advisor
COMEX = The Commodity Exchange Inc. = the world’s leading derivatives marketplace for trading metals – formed 50 years ago specifically to rig gold and silver prices, to try to protect Western fiat currencies
CPI = Consumer Price Index
CTA = Commodity Trade Advisor
ETF = Exchange Traded Funds
EFP = Exchange of Futures for Physical
Global South = all countries apart from NATOstan = AKA RoW
GLD = the SPDR EFT gold share Nasdaq ticker/symbol
NSFR = Net Stable Funding Ratio
NATO = North Atlantic ‘Terror’ Organisation
NATOstan = NATO plus its yapping lapdogs and sundry hangers on – sadly this group includes both NZ and Australia
Repo = Repurchase Agreement – a form of short term (often overnight) form of borrowing for dealers in government securities
Reverse Repos = the reverse of a Repo – it is the party originally buying the security
Rinse-able = this term refers to investors that can be lured out of their long positions
RoW = Rest of the World
SPDR = one of the family of ETFs managed by State Street, the TBTF largest asset manager on the planet with around $44 trillion in assets under management, custody and administration – it tracks the price of gold bullion in the over-the counter market – the SPDR gold share ETF is known as GLD
TPTB = The Powers That Be

What is China’s Economic Future?

Political economists Radhika Desai and Michael Hudson are joined by Beijing-based scholar Mick Dunford to discuss what is actually happening in China’s economy, explaining its technological development and transition toward a new industrial revolution.

Radhika Desai and Michael Hudson at The Geopolitical Economy Hour.

Video:

Podcast:

Transcript:

RADHIKA DESAI: Hello and welcome to the 24th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. I’m Radhika Desai.

MICHAEL HUDSON: I’m Michael Hudson.

RADHIKA DESAI: And working behind the scenes to bring you our show every fortnight are our host, Ben Norton; our videographer, Paul Graham; and our transcriber, Zach Weiser.

And with us today we have, once again, Professor Mick Dunford, professor emeritus of geography at Sussex University and now working at the Chinese Academy of Sciences, keeping a close watch, among other things, on China’s economy. So welcome, Mick.

MICK DUNFORD:  Thank you very much.

RADHIKA DESAI: So, China’s economy is what we’re going to talk about today. Where is it at after decades of breakneck growth, after executing the greatest industrial revolution ever? Where is it headed?

Trying to understand this is not easy. The disinformation that is fake news and even what I often call fake scholarship that distorts the view that any honest person may be trying to take on China’s economy is simply overwhelming. It’s absolutely wall-to-wall propaganda, no matter which Western publication or website you open.

If we are to believe the Western press and the leading scholarly lights of the West, who are the major generators of the Western discourse on China, we are at peak China. That is to say, they claim that China has reached a point, reached the highest point, that is, that it ever can. And from here on, it’s only going to be downhill, more or less rapidly.

They say that China has, in recent years, inflated a huge property bubble to compensate for the West’s inability to keep up imports. And this bubble is about to burst. And when it does, it will subject China to a 1980s and 1990s Japan-style long-term deflation or secular stagnation. They have even invented a word to talk about this: “Japanification”. We are told that the Japanification of China’s economy is impending.

They say that the U.S.’s trade and technology wars are hitting China where it hurts the most, at its export and its reliance on inward foreign investment. They are saying that China has grown only by stealing technology. And now that the U.S. is making it harder for it to do so, its technological development can only stall. They are saying that China followed disastrous COVID-19 policies, leading to mass death, draconian lockdowns, and economic disaster.

They are saying that China over-invests, and its growth will not pick up unless China now permits higher consumption levels. They are saying that China has a serious unemployment crisis, that the CPC, the Communist Party of China, is losing legitimacy, because it is failing to deliver ever-higher living standards. And they are saying that Xi Jinping’s authoritarian leadership is ensuring that the private sector will stall, and with it, so will China’s growth.

All this, they say, before even beginning to talk about China’s foreign policy. And there, of course, lie another long litany of alleged disasters and misdemeanors that China is responsible for, beginning with debt-trap diplomacy and China’s allegedly voracious appetite for the world’s resources.

The only reason why Western experts ever stress the strength of China’s economy is when they want to argue that the West must redouble its efforts to contain China and to stall its rise.

So today, we’re going to take a closer look at China’s economy, and in doing so, we’re going to bust a lot of these myths. We’re going to show you that, sadly, for the purveyors of the fake news and fake scholarship about China, no amount of their huffing and puffing has been able to blow down China’s house, because, like the good, the smart little pig, China is actually building its house with bricks.

So, we have a number of topics to discuss in this show. Here they are:

1.    Characterising China’s Economy: Capitalist? Socialist?

2.    Growth Story

3.    Covid Response

4.    The Alleged Debt and Property Bubble? And Japanification?

5.    Restricted Consumption? Stagnant living standards?

6.    Exports in the China Story

7.    China’s new growth strategy

8.    China’s foreign policy

So, these are the topics that we hope to discuss. We want to begin by talking about how to characterize China’s economy. Is it capitalist? Is it socialist? Then we will do the most important and primary basic thing, we will look at the growth story with some statistics. We will then look at China’s Covid response. We will look at the alleged debt and property bubble and whether China is being Japanified.

Then we will look at the issue of whether China is overinvesting and neglecting consumption and living standards, etc. How reliant is China on exports? What is China’s growth strategy? And what is China’s foreign policy? And are those myths about it true? So, this is what we hope to discuss.

So, Mick, why don’t you start us off with your thoughts on exactly how to characterize China’s economy?

MICK DUNFORD: Ok, the way I would characterize China is as a planned rational state. I mean, right the way through, it has maintained a system of national five-year planning, and it also produces longer-term plans. But it’s a planned rational state that uses market instruments.

China has a very large state sector. And of course, some people have claimed that this state sector is, in a sense, an impediment to growth. And we’ve seen a resurrection of this idea, guo jin min tui (国进民退), which is used to refer to the idea that the state sector is advancing and the private sector is retreating.

It’s a very, very strange concept, in fact, because the third word is min (民), and min refers to people. So, what they are actually, in a sense, saying – these ideas were invented by neoliberal economists in 2002 – the private sector is equated with the people, which I find absolutely astonishing. But, I mean, the country does have a very significant public sector.

What I find striking is that one can actually turn it around and say, what is it that these Western economists seem to think China should do? And they seem to think that China should privatize all assets into the hands of domestic and foreign capitalists. It should remove capital controls. It should open the door to foreign finance capital. It should transfer governance to liberal capitalist political parties that are actually controlled by capital.

I think one of the most fundamental features of the China system is actually that it’s the state that controls capital, rather than capital that controls the state. And it’s, in fact, this aspect of the Chinese model, and in particular, the rule of the Communist Party of China that has basically transformed China from what was, effectively one of the poorest countries in the world into one of its largest industrial powers.

So, in a way, it’s a planned rational state in which the CPC has played an absolutely fundamental role. And without it, I mean, China would never have established the national sovereignty that permitted it to choose a path that suited its conditions and to radically transform the lives and livelihoods of its people.

RADHIKA DESAI: Michael, do you want to [speak]?

MICHAEL HUDSON: The question is, what is the state? There are two aspects of the state with China. One is public infrastructure. And the purpose of China’s public infrastructure is to lower the cost of doing business because infrastructure is a monopoly.

That’s what really upsets the American investors. They wanted to buy the phone system, the transportation system, so that they could benefit from charging monopoly rents, just like under Ronald Reagan and Margaret Thatcher.

The most important sector that China’s treated in the public is money creation and banks. Americans hope that American banks would come over and they would be making all the loans in China and benefiting from China’s growth and turning it into interest. And instead, the government’s doing that. And the government is deciding what to lend to.

And there’s a third aspect of what people think of when they say state. That’s a centralized economy, centralized planning, Soviet style.

China is one of the least centralized economies in the world because the central government has left the localities to go their own way. That’s part of the Hundred Flowers Bloom. Let’s see how each locality is going to maneuver on a pragmatic, ad hoc basis.

Well, the pragmatic ad hoc basis meant how are localities, villages, and small towns going to finance their budgets? Well, they financed it by real estate sales, and that’s going to be what we’re discussing later.

But once you realize that the state sector is so different from what a state sector is in America, centralized planning and the control of Wall Street for financial purposes, finance capitalism, hyper-centralized planning, you realize that China is the antithesis of what the usual view is.

RADHIKA DESAI: Absolutely. And I’d just like to add a few points, which dovetail very nicely with what both of you have said.

The fact of the matter is that this was also true of the Soviet Union and the Eastern European countries when they were still ruled by communist parties. We generally refer to them as socialist or communist, but in reality, they themselves never claimed to be socialist or communist. They only said they were building socialism, especially in a country that was as poor as China was in 1949.

The leadership of the Communist Party of China has always understood that there has to be a long period of transition in which there will be a complex set of compromises that will have to be made in order to steer the economy in the direction of socialism, in order to build socialism.

So, from its beginnings, the revolutionary state in China was a multi-class state and a multi-party state. People don’t realize very often that while the Communist Party of China is the overwhelmingly most powerful party in China, there are other parties that exist as well, which reflect the originally multi-class character of China.

Now, it’s true that since 1978, the government has loosened much of its control over the economy. But the important thing here is that the Communist Party retains control of the Chinese state.

The way I like to put it is, yes, there are lots of capitalists in China. Yes, those capitalists are very powerful. They are at the head of some of the biggest corporations in the world, and they are quite influential within the Communist Party. But what makes China meaningfully socialist or meaningfully treading the path to socialism, let’s put it that way, is the fact that ultimately the reins of power are held in the hands of the Communist Party of China leadership, which owes its legitimacy to the people of China.

So, the reigns of power, the reigns of state power are not held by the capitalists; they are held by the Communist Party leadership.

So, in that sense, I would say that China is meaningfully socialist. Although, as Mick pointed out, there is a fairly large private sector in China, but so too is the state sector very large. And the extent of state ownership means that even though the private sector is very large, the state retains control over the overall pace and pattern of growth and development in the country.

And I just add one final thing here, which is going to become quite important as we discuss the various other points, and that is that the financial sector in China remains very heavily controlled by the state.

China has capital controls, China practices a fair degree of financial repression, and China’s financial system is geared to providing money for long-term investments that improve the productive capacities of the economy and the material welfare of the people. And this is completely different from the kind of financial sector we have today.

So, Mick or Michael, did you want to add anything?

MICK DUNFORD: Just to reiterate, I mean, the point is, the government sets strategic targets that relate to raising the quality of the life of all the Chinese people. And it has strategic autonomy, which gives China the opportunity or the possibility of actually choosing its own development path.

And I think that’s something that very strikingly marks China out from other parts of the Global South that have had much greater difficulty, in a sense, in accelerating their growth, partly because of debt and their subordination to the Washington financial institutions.

So I think that is critically important, the role of sovereignty and autonomy in enabling China to make choices that suited its conditions, and at the same time making choices that are driven by a long-term strategic goal to transform the quality of the lives of all Chinese people.

MICHAEL HUDSON: I want to put in one word about sovereignty. You put your finger on it. That’s really what makes it different.

What makes other countries lose their sovereignty is when they let go, how are they going to finance their investment? If they let foreign banks come in to finance their investment, if they let American and European banks come in, what do they do? They fund a real estate bubble, a different kind of a real estate bubble. They fund takeover loans. They fund privatization.

Banks don’t make loans for new investment. China makes great money to finance new tangible investment. Banks make money so you can buy a public utility or a railroad and then just load it down with debt, and you can borrow and borrow and use the money that you borrow to pay a special dividend if you’re a private capital company. Pretty soon, the country that follows this dependency on foreign credit ends up losing its sovereignty.

The way in which China has protected its sovereignty is to keep money in the public domain and to create money for actual tangible capital investment, not to take your property into a property-owning rentier class, largely foreign-owned.

RADHIKA DESAI: Thank you. Those are very important points. Thank you.

I’d just like to add one final point on the matter of how to characterize the Chinese economy and the Chinese state. At the end of the day, it’s not just important to say that the state controls the economy, but whose state is it?

The way to look at it as well is that in the United States, essentially we have a state that is controlled by the big corporations, which in our time have become exceedingly financialized corporations, so that they are directing the United States economy essentially towards ever more debt and ever less production, whereas that is not the case in China.

And the question of whose state it is makes use of the word autonomy. The autonomy refers to the fact that it is not subservient to any one section of society, but seeks to achieve the welfare of society as a whole and increase its productive capacity.

MICK DUNFORD: If I may just add, I think also it’s important that you pay attention to the policy-making process in China. It’s an example of what one might call substantive democracy. It delivers substantive results for the whole of the Chinese population.

In that sense, it delivers improvements in the quality of the lives of all the people, and therefore, in a sense, it’s a democratic system. But it’s also a country that actually has procedures of policy-making, experimentation, design, and choice and so on that are extremely important and that have fundamental aspects of democracy about them.

When Western countries characterize China as authoritarian, they’re actually fundamentally misrepresenting the character of the Chinese system and the way in which it works, because they, in a sense, merely equate democracy with a system, whereas China, of course, does have multiple political parties, but a system with competitive elections between different political parties. There are other models of democracy, and China is another model of democracy.

RADHIKA DESAI: Mick, you’re absolutely right to talk about the substantive democracy. Indeed, in China, they have recently developed a new term for it. They call it a “whole process democracy”, and it really involves multiple levels of consultation with the people, going down to the most basic village and township levels, and then all the way up the chain.

And I think this process does work, because the other remarkable thing about the CPC leadership is its ability to change direction pragmatically. If something does not work, then it assesses what it has attempted, why it has failed, and then it revises course. So, I think we will see several instances of this as we talk as well.

Michael, you want to add something?

MICHAEL HUDSON: One thing about democracy. The definition of a democracy traditionally is to prevent an oligarchy from developing. There’s only one way to prevent an oligarchy from developing as people get richer and richer, and that’s to have a strong state.

The role of a strong state is to prevent an oligarchy from developing. That’s why the oligarchy in America and Europe are libertarian, meaning get rid of government, because a government is strong enough to prevent us from gouging the economy, to prevent us from taking it over.

So, you need a strong central state in order to have a democracy. Americans call that socialism, and they say that’s the antithesis of democracy, which means a state that is loyal to the United States and follows U.S. policy and lets the U.S. banks financialize the economy. So, just to clarify the definitions here.

RADHIKA DESAI: Very, very true, Michael. But let’s not go, I mean, maybe we should do a separate show on political theory of the state, because that’s equally important.

But for now, let’s look at our next topic. We hope, of course, that everybody understands how we characterize China’s state. But now, let’s look at China’s GDP growth.

So, here you have a chart, and we have several charts on this matter, but we’ll take them one by one and comment on them:

So, here we have a chart showing the annual rate of GDP growth from 1980 to 2028. Of course, post-2023 are their projections, which are shown by the dotted lines. And I’ve only taken a few selected countries from the Our World in Data website, and anybody can go there and look at this data, by the way.

So, you can see China and then a handful of the most important Western countries. And you can see that going back to 1980, essentially China’s growth rate, which is here, the top red line here, has absolutely been massively higher on practically any year than the other countries.

In fact, you see I left Russia in here. I should probably have taken it out. It’s a bit of a distraction, because here you see Russia’s growth rate massively bouncing up from the late 90s financial crisis. But let’s leave that aside.

All the other major countries, which you see here, they are all showing considerably lower growth. So, the United States here is this orangish line. And essentially, they’re all showing much lower growth.

And more recently as well, this is the Covid-19 pandemic. And you can see that China, again, like all the other countries, it experienced a fairly sharp decline in the growth rate, but it still remained positive, unlike all the other countries.

And it remains substantially above that of the rest of the economies that constantly are telling China how to improve its economic policy. So, that’s what I want to say about this chart.

But Mick, go ahead.

MICK DUNFORD: Can you show that table that I sent?

RADHIKA DESAI: Yeah, sure. Yes, here we go:

MICK DUNFORD: These are more recent growth rates for China, for the world, and for the G7. And I mean, first of all, they show absolutely clearly that China’s growth rate is still a long way in excess of the average growth rates of all G7 countries, many of which have actually performed abysmally. I mean, Germany is now in recession, it declined 0.3% per year this year. I mean, Italy has had extremely low rates of growth, France, Germany, the United Kingdom, Japan, all had extremely low rates of growth.

China last year achieved a growth rate of 5.2%. It itself expects to grow at 5% next year. The IMF forecast 4.6%. Even that 4.6% target is quite close to the average growth rate that China needs to achieve to meet its 2035 target. It has a 2035 target of doubling its GDP, its 2020 GDP by 2035. I think that that goal is perfectly realizable. And in that sense, I strongly disagree with people who argue that China has in a sense peaked.

But I do find it, really quite astonishing, that Western countries, whose economies have performed extremely poorly, feel in a position to lecture China about how it should address what is said to be an unsatisfactory rate of growth. That’s the first point I want to make.

I just want to say something else, if I may. When we talk about, I mean, China’s growth has slowed. And, there’s no doubt that in terms of people’s everyday lives, there are many difficulties. And I just want to quote something.

At New Year, Xi Jinping gave a speech. I wanted to cite his actual words. He recognised that in these years, China faces what he called the tests of the winds and rains. And then he said, when I see people rising to the occasion, reaching out to each other in adversity, meeting challenges head on and overcoming difficulties, I am deeply moved.

So, the leadership and all Chinese people are well aware that there are many, many difficulties and challenges confronted, because China is actually undergoing a major structural transformation about which we shall speak later. But China is also in the short term undertaking a lot of important actions that are actually designed to cope with some of the real difficulties that people confront.

So, if you listen to Li Qiang’s government work report, he addressed the problem of short-term employment generation. And there are proposals for 12 million new urban jobs to increase employment, especially for college graduates and other young people, because for young people, the unemployment rate, including college students, is in the region of 21 percent. Urban unemployment is 5 percent. So, there are issues to do with the generation of employment.

Government expenditure this year will target a whole series of strategic issues, but also livelihoods. So, affordable housing, youth unemployment, job security, insurance, pensions, preschool education, the living conditions in older communities. So, I’m just saying that, in the current context, difficult economic situation and a particularly turbulent global situation. I mean, China, as every other country in the world, faces challenges, and it is in many ways directly addressing them in very important ways.

RADHIKA DESAI: Great. Thanks, Mick. Michael, do you want to add anything?

MICHAEL HUDSON: No, I think that’s it. The question is, what is the GDP that is growing? There are a number of ways of looking at GDP. And when I went to school 60 years ago, economists usually thought of GDP as something industrial. They’d look at energy production. They’d look at railway cargo transportation.

If you look at the industrial component of what most economists used to look at, electricity is the power for industry, electricity is productivity growth for labor. If you look at these, what is the component of GDP, you realize that these differences in Mick’s charts are even wider than what he showed, because the American GDP, very largely interest, overdraft fees of credit card companies, as we’ve said, is providing a financial service. 7% of American GDP is the increase in homeowners’ view of what their rental value of their property is. That’s 7%.

Now, I doubt that China includes a measure like this in its GDP. But if it did, with all of its rise in real estate prices, its GDP would be even higher in a reality-based basis.

So real GDP, as we think of it, and the public thinks of it, is something useful and productive. Actually, China’s doing a much more efficient job in minimizing the kind of financial and rentier overhead that you have in the United States.

RADHIKA DESAI: Exactly, Michael. What I was going to point out as well is that these figures of U.S. GDP growth and the absolute level of U.S. GDP are heavily financialized.

The financial sector, which actually is not a force for good in general in the U.S. economy, it is out of which the indebtedness comes, out of which the productive weakening comes. The growth of the financial sector is counted as GDP in the United States and massively inflates U.S. GDP, which would not be as high as this.

And this is particularly important given that President Biden, for example, is congratulating himself now for having the strongest economy in the world or the Western world or whatever it is. Well, that’s what the U.S.’s boast is based on.

And China does not do that, nor does it have the kind of financial sector which creates, which destroys the productive economy. Rather, as we were saying, it has the kind of financial sector that supports it.

So, just another general point I want to make. We were talking about this chart:

This shows from 1980 to 2028, and the projections remain, by the way, even from conservative sources, that China’s growth is going to remain higher than the rest of the world, particularly the Western countries, for a long time to come.

And I also decided to show you this chart:

This is the chart of growth, which is just a more focused version of the previous one, which shows growth rates from 2008 to 2028.

So 2008 is when we had what Michael and I call the North Atlantic Financial Crisis. And since then, what we’ve seen is, yes, of course, all countries have seen a sort of a reduction in their growth rate, and certainly China has. But even since then, you can see that China’s growth remains high and stable. So, that’s another thing that we wanted to show.

And this is a chart showing the rise of per capita GDP:

That is to say, you can have a higher GDP, but if your population is expanding, then to what extent is per capita GDP rising? So, you can see here that, again, even in terms of per capita GDP, and this only again goes to 2021, but in terms of per capita GDP, China has remained head and shoulders above all the major Western countries.

And this bounce here that you see in the case of the US and the UK here, it is only a dead cat bounce from the absolute depths to which their economies had sunk during Covid, and so they came to some sort of normalcy.

Mick, you may want to say something about this chart, because you sent it to me. So, please go ahead:

MICK DUNFORD: It’s correct, of course, that China’s growth slowed. Now, in 2013, China entered what is called the New Era. At that time, China decided that its growth rate should slow. It chose slower growth. It spoke of 6 or 7 percent per year, and it more or less achieved that, until the Covid pandemic. So, China chose slower growth for very particular reasons, and I think in this discussion, we shall come to some of these reasons later on.

But in a sense, what they want is what they call high-quality growth. And what China is seeking to do is undertake a profound structural transformation of its economy, establishing new growth drivers by directing finance towards high-productivity sectors and directing finance towards the use of digital and green technologies in order to transform its traditional industries. So, in a sense, it’s undergoing a profound process of structural transformation.

And I mean, if you, for example, look at Li Qiang’s speech, the major tasks include invigorating China through science and education, so to strengthen the education, science and technology system, to improve the capabilities of the workforce, or promote innovation, industrial investment and skills, and another, striving to modernize the industrial system and accelerate the development of new productive forces, bearing in mind that we’re on the verge of a new industrial revolution. But these are very important issues, fundamentally important issues.

RADHIKA DESAI: And I would say just, and I know we’ll talk about it at greater length later on, but it is really important to bear in mind that really, when the world stands at the cusp of being able to exploit new technologies like quantum computing or nanotechnology or artificial intelligence or what have you, a relatively centralized decision-making process about how to allocate resources, for what purposes, for what social benefits, etc., is likely to prove far superior, that is to say, China’s method is likely to prove far superior than the Western tactic of leaving private corporate capital in charge of the process.

And just to give you a couple of instances of this, the fact that private corporate capital is in charge of the development of digital technologies is already creating all sorts of social harms in our Western societies, whether it is harms to children’s mental health or even adults’ mental health, to political division that the algorithms sow and so on.

And also, it is leading to a situation where even these mega-corporations, these giant corporations, actually do not have the resources to invest, the scale of resources that will be needed to invest. So, for example, you hear in the Financial Times that Sam Altman is looking for people to invest in his artificial intelligence ventures, which will require trillions of dollars, and he cannot find private investors for it. So, this is really quite interesting.

Okay, so if we’re done with the growth rate story, oh, and I just want to say one other thing about this, which is, this is a GDP per capita in purchasing power parity, and China, in the space of a few decades, essentially, has experienced the biggest spurt in per capita well-being, etc., which includes important achievements like eliminating extreme poverty.

The Communist Party has brought China to essentially per capita GDP in purchasing power terms of next to nothing in 1980 to about $20,000 per annum in 2020. This is really quite an important achievement. And to do this for a country of 5 to 10 million people would be laudable, but to do this for a country of 1.3 billion people is a massive, historic achievement, and I think that’s something to remember.

MICK DUNFORD: I just, if you just go back for one minute, I mean, I absolutely agree with what you’ve just said, Radhika.

I’ll just make a comment about this chart. It’s because we were probably going to speak about Japanification:

It basically shows that the GDP per capita of Japan, and indeed of Germany, closed in on the United States, and actually Germany overtook it in the 1980s. But after that point in time, I mean, after the revaluation of their two respective currencies, and after the, the bubble, the stock market and property market bubble in Japan, you saw stagnation set in. And there’s a question as to whether that will happen with China.

But I mean, I think that one thing that’s striking in this diagram is that China is still at a much lower level of GDP per capita than Japan, or indeed Germany was at that time. And those economies, because, they were at the technological frontier to some extent, had to innovate, move into new technologies.

China, because there is still a technological gap, has enormous opportunities to accelerate its growth in a way in which, well, Japan failed because it chose not to take up opportunities, and it gave up semiconductors manufacture. But China has enormous opportunities, and that’s one reason why we must anticipate China’s growth as continuing.

RADHIKA DESAI: Absolutely. Thank you, Mick. Okay, so if we’re done with the growth story, let’s go to our next topic, which is what happened in China under Covid-19. Now, of course, there is just so much dispute about and controversy around Covid and Covid strategies, etc. So we don’t want to get into all of them, but I just want to emphasize two things.

We’ve already looked at the growth figures, we looked at the growth figures around Covid:

So you can see here that in 2020, all economies had a big dip thanks to Covid in their economies, but China is alone among the major economies to have remained in positive growth territory, and to have, of course, remained much higher than the rest of the other major world economies. So essentially, China, whatever China did, it did not sacrifice growth.

Now, this is very ironical, because in the Western countries, we were told that we need to, in order to continue growing, we need to, so in order to preserve livelihoods, which was the euphemism for preserving the profits of big corporations, in order to preserve livelihoods, we may have to sacrifice some lives. And the Western economies went through an absolutely excruciating process of lockdown here, and opening there, and lockdown again, and opening again, and so on.

But all of this had devastating impacts on Western economies, whereas China prioritized the preservation of life above all. And it imposed a lockdown knowing that, okay, even if we are going to develop vaccines, and remember, China developed its own vaccines, and effectively inoculated over 70 percent of the population by the time they began reopening.

China prioritized the saving of lives, and it was accused of essentially creating world shortages by shutting down its economy, etc. But in reality, China’s strategy, which focused before the availability of vaccines, on essentially physical distancing, isolation, etc., as was necessary, but China managed to do it in a way as to keep up a relatively robust growth rate, and very importantly, lose very few lives.

This is a chart, again from Our World In Data, of cumulative Covid-19 deaths per million of population:

So here we have all these countries, the United States and United Kingdom are these top two lines, Germany, Canada, Japan, even though we are told that East Asian economies did well because they had experience with SARS, etc., even then, compared to China, which is down here with a cumulative Covid death rate per million of about 149 or something people dying per million, and these numbers are over 3,000, almost 4,000 per million at this point in the United States and the UK, and then you have these other economies.

So China actually managed to avoid the worst of Covid, both in terms of lives and in terms of livelihood, and it did so because it did not compromise the saving of lives.

Does anyone else want to add anything? Mick? You were there.

MICK DUNFORD: Well, I mean, obviously, there were difficulties for some people in some places at some times. I was here right through it. All I can say is the impact personally on me was extremely limited.

It was a very effective system for protecting life. And if you lived in some places, then in fact the impact on your life, apart from having frequent nucleic acid tests and so on and ensuring that your health code was up to date, the impact on one’s life was relatively limited.

But in some places, obviously, in Wuhan at the outset, in Shanghai later on, the impact was very considerable.

But I think it’s an indication of the importance of a kind of collectivism, and the priority given to the protection of human life. And as you said, it is quite striking that actually through it, China’s economy actually kept ticking over.

And of course, China produces so many important intermediate goods that obviously it was also very important in providing things that were needed in many, many other parts of the world.

It also shared its drugs, its vaccines, which is really quite different, in a sense, from the conduct of the United States. And to some extent, the Western pharmaceutical companies.

RADHIKA DESAI: Absolutely. Michael, go ahead.

MICHAEL HUDSON: In the United States, that would be considered a failure of policy. The United States used Covid as an opportunity to kill.

For instance, the governor of New York, Cuomo, took the Covid patients and he moved them into all of the assisted living and old people’s homes. And that had a great increase in productivity. It resulted in enormous death rates for the elderly.

That helped save New York’s pension plan system. It helped save other pension plans. It helped save Social Security because the dead people were no longer what America called “the dead weight”.

The American policy was to indeed infect as many people over the age of 65 as you could. And that helped balance state, local budgets, pension plan budgets.

The increase in the death rate is now the official policy of the Center for Disease Control in the United States. They say do not wear masks. They’ve blocked any kind of mask wearing. They’ve done everything they could to prevent the use of HIPAA filters or airborne disease. The Disease Control Center says that Covid is not an airborne disease. Therefore, do not protect yourself.

Well, the result is many children have been getting Covid and that weakens their resistance system. And they’re getting measles and all sorts of other things. And all of that is greatly increasing GDP in America. The health care costs of America’s destructive policy.

I think Marx made a joke about this in Capital. He said when more people get sick, the doctors and the economic output goes up. Are you really going to consider sickness and destruction and fires rebuilding and cleanup costs? Are you going to count all of this there?

RADHIKA DESAI: But the irony is Michael, even with all of that, America’s GDP plunged so deeply down.

Well, I think we should move on to the next topic, but I will just say one thing. It is generally said that China is in a panic, the Chinese government reversed its draconian Covid policies because there were popular protests, and blah blah and so on. I would not agree with that.

Certainly, there were some popular protests. It also seems as though at least some of them were being pushed by the National Endowment for Democracy with the typical color revolution style. They have one symbol that symbolizes it. So, they decided to put up blank pieces of paper, etc. So, there’s no doubt that there was some of this going on. And as Mick said, undoubtedly, there were local difficulties in many places.

But what becomes very clear is that China decided to lift Covid restrictions towards the end of 2022 only after it has satisfied itself that the risk. And I should also add one thing. It was under pressure to lift these restrictions a great deal because the fact was that the rest of the world was not following China’s footsteps apart from a handful of other countries. And they were socialist countries. They were not following China’s footsteps.

So, it’s very hard to be the only country that’s doing it. But nevertheless, despite all those pressures, China had a very deliberate policy. It lifted Covid restrictions after assuring itself that enough of the population had been vaccinated, as to achieve something close to herd immunity.

And these figures of deaths per million demonstrate that China’s bet proved right, and China continues to monitor the situation. Covid hasn’t gone away.

And so, in all of these ways, I think that it’s important for us to understand that China’s policy has actually been above all about protecting people’s lives.

MICK DUNFORD: Just from my recollection, the demonstrations of which you spoke, where the slogans were written in English, I wonder who they were talking to, were on the 1st of December. China had, on the 11th of November, already announced the steps of, in a sense, removing restrictions. And then they were finalized in early December. So, the change was already underway.

RADHIKA DESAI: Exactly. Great. So, I think we are at almost, I think, 50 minutes or so. So, let’s do the next topic, which is the property bubble. And then we will stop this episode and we will do a part two of this episode, and do the other four topics that remain in part two.

So, Mick, do you want to start us off about the property bubble and the alleged Japanification, impending Japanification of China’s economy?

MICK DUNFORD: Okay. Well, if you want, you can just show the chart:

Basically, you can see that throughout this period, Chinese house prices have risen quite substantially. You know, in a sense, the story started, with housing reform, after 1988, when China moved from a welfare to a commodity system. And then, in 1998, it actually privatized Danwei housing, and it adopted the view that housing should be provided, as a commodity by developers.

And in 2003, that course of action was confirmed. And from that point in time, one saw very, very substantial growth in the number of developers, many of which, the overwhelming majority of which were private developers. So, in a sense, they moved towards a fundamentally market system.

And they very quickly had to make certain adjustments because they found that while the quality of housing and the amount of housing space per person was going up, these developers were orienting their houses towards more affluent groups. So, there was an under-provision of housing for middle-income groups and for low-income groups.

And so, there were progressively, you saw over the years, increasing attention paid to the provision of low-cost housing and of low-cost rented housing. And in fact, in the current five-year plan, 25% of all housing is meant to be basically low-cost housing.

So, the important point is that this problem emerged in a system that was liberalized, actually, I mean, in line with recommendations that were made in 1993 by the World Bank.

So, in other words, it’s an example of a liberalized, predominantly market-led, private-led system, in which these difficulties and these problems have emerged.

So, that’s the first thing I want to say. And I mean, obviously, to address housing needs, China has had, over the course of time, to considerably move back in the direction of providing low-cost housing in order to meet the housing needs of the Chinese people.

But basically, in August 2020, the government got very, very deeply concerned about, on the one hand, increasing house prices and, on the other hand, the explosion of borrowing and the fact that the liabilities of many of these developers substantially exceeded their assets.

And of course, the other line on that chart is a line indicating house prices in the United States. And of course, it was the crash of prices in the subprime market that, in a sense, precipitated the financial crisis. So, China, in the first place, is absolutely determined that it should not confront that kind of problem that was generated by the liberalized housing system in the United States.

So, I mean, that’s the first thing I basically want to say.

If you want, I can say something about the case of Evergrande. But basically, what China did in 2020 was it introduced what it called Three Red Lines, which were basically designed to reduce financial risks.

But it had a number of consequences because it, to some extent, deflated the housing market. Housing prices started to fall. Some of these developers found themselves in a situation where their liabilities substantially exceeded their assets. There was a decline in housing investment.

But to some extent, I think this is a part of a deliberate goal of basically diverting capital towards, as I said earlier, high productivity activities and away from activities, especially the speculative side of the housing market. So, I’ll just say that for the moment, but I can come back and say something about Evergrande, if you wish, in a few minutes.

RADHIKA DESAI: Okay, great. Michael, do you want to add anything?

MICHAEL HUDSON: Well, what I’d like to know as the background for this is what is the, how much of this housing is owner-occupied and how much is rental housing? That’s one question. The other question is how much is the ratio of housing costs to personal income? In America, it’s over 40% of personal income for housing. What’s the ratio in China?

I’d want to know the debt-equity ratio. How much debt, on the average, for different income groups? Debt relative to the value of housing. In America, for the real estate sector as a whole, debt is, the banker owns more of the house than the nominal house owner, whose equity ratio for the whole economy is under 50%.

These are the depth dimensions that I’d want to ask for these charts, if you know anything about them.

RADHIKA DESAI: Okay, thanks for that. And so, I just want to add one thing, which is that, this graph actually really says it all, and in some ways implicitly answers Michael’s questions:

Because the blue line, which shows the United States property prices, you can see that they reached a certain peak at 150% of the value of its 2010 values in 2008. Then it went down to below the level of 2010.

But U.S. monetary policy, Federal Reserve policy, its continuing deregulated financial sector, the easy money policy that was applied in a big way with zero interest rate policies, with quantitative easing, etc., etc., has simply led to a new property boom, where the prices of property prices have reached a peak, which is even higher than that of 2007-8, which was such a disaster. And this was all made possible precisely by the, by increasing housing debt, etc.

Whereas in China, a big driver of the housing boom has actually been that people are investing their savings in it. So, by logically, it means that the extent of a debt in the housing market will be comparatively lower. The entities that are indebted are actually the developers.

And that’s a very different kind of problem than, than the, than the owners being indebted. So that’s the main thing I want to say.

And Mick, you wanted to come back about, about Evergrande, so please do. And then remember also that we want to talk about this chart in particular, and deal with the question of Japanification:

So, please go ahead, Mick. Let’s talk about that.

MICK DUNFORD: Okay, well, I mean, as Radhika just said, the problem is, the indebtedness of developers, and the existence of debts that considerably exceed the value of their assets.

And the way in which this situation has come about, and I mean, as I said, the Chinese government, in a sense, wants to address the financial risks associated with that situation, and did so by introducing these so-called Three Red Lines.

It also is interested in reducing house prices, and it’s also interested in redirecting finance towards productivity-increasing activities.

So, Evergrande is an enormous real estate giant. It has debt of 300 billion dollars. It has 20 billion of overseas debt, and its assets, according to its accounts at the end of the last quarter of last year, are 242 billion. And 90 percent of those assets are in mainland China. So, its liability asset ratio was 84.7 percent, and the Three Red Lines set a limit of 70, 70 percent. So, it’s substantially in excess of the red line.

In 2021, it defaulted. And then, in January this year, it was told to liquidate after international creditors and the company failed to agree on a restructuring plan. In September, by the way, last year, its chair, Su Jiayin, was placed under mandatory measures, on suspicion of unspecified crimes. Basically, it was a Hong Kong court that called in the liquidators.

And the reason was that, in a way, outside China, Evergrande looked as a massively profitable distressed debt trade opportunity. There were 19 billion in defaulted offshore bonds with very substantial assets and, initially, a view that the Chinese government might prop up the property market.

So, large numbers of U.S. and European hedge funds basically piled into the debt, and they expected quite large payouts. But it seems as if this negotiation was, to some extent, controlled by a Guangdong risk management committee. And the authorities, basically, were very, very reluctant to allow offshore claimants to secure onshore revenues and onshore assets.

And, in fact, to stop the misuse of funds, I think about 10 Chinese local provinces actually took control of pre-sales revenues. They put it into custodial accounts, and the idea was that this money should basically—the priority is to ensure that the houses of people who’ve paid deposits on houses are actually built, and people who’ve undertaken work in building houses, are basically paid. So, that, then saw the value of these offshore bonds collapse very rapidly, indeed.

And I think that, to some extent, explains the concerns of the international financial market about the difficulties of this particular case. But I think, it’s clear that China intends, basically, to deflate this sector and to put an end to this speculative housing market as much as it possibly can, and to direct capital, towards productivity increasing, essentially, the industrial sector. And we shall talk about this direction of finance later on.

MICHAEL HUDSON: Evergrande debt, and other real estate debt, is to domestic Chinese banks and lenders. Certainly, many Chinese home buyers did not borrow internationally.

So, I want to find out how much the domestic Chinese banking system, or near banking system — not the Bank of China itself, but the near banks intermediaries who lent — to what extent have the banks given guarantees for the loans for Evergrande and others?

I understand that there are some guarantees domestically, and if the banks have to pay them, the banks will go under, just as occurring here in New York City. Do you have any information on that?

MICK DUNFORD: No, I don’t really have any information, except, I mean, some of the literature that I’ve read suggests that these creditors, bondholders and also other creditors, basically shareholders, are going to take a very, very major haircut.

RADHIKA DESAI: Exactly. I think that this is the key, that there will be an imposition of haircuts on the rich and the powerful, not just subjecting ordinary people to repossession of their homes, which they should have access to.

So, as Mick has already said, the Chinese government is doing everything possible to make sure that the ordinary buyers who have bought these houses do not lose out, which is the opposite of what was done in trying to resolve the housing and credit bubble in the United States.

So, I just want to say a couple of things. I mean, the Chinese government is quite aware, as Mick pointed out, the whole thing has begun by, this whole property bubble is in good part a product of the fact that when relations between China and the West were much better, China accepted some World Bank advice, and this is partly a result of that and the kind of deregulation that the World Bank had suggested.

But very clearly, now relations between China and the West are not good. In fact, they’re anything but good. China is unlikely, once bitten, twice shy, to accept such bad advice again, even if they were good. And now that they’re not good, there will be, and China is clearly looking at distinctively pragmatic, socialistic ways out.

And you see in the new address to the NPC by the Premier [Li Qiang], that social housing has become a major priority, not building houses for private ownership, but rather building houses which will be kept in the public sector and rented out at affordable rates. And I think this is really an important thing, really the way to go.

And finally, I would say that, the property bubble in Japan and the property bubble in the United States were bound to have very different consequences, partly because, well, for two reasons, mainly. Number one, the nature of their financial systems were very different.

In the case of Japan, the financial system was being transformed from one that resembles China’s financial system to something that resembles much more the US financial system. And Japan has continued this transformation and has suffered as a result. I would say in short, really, Japan has paid the price of keeping its economy capitalist. So in many ways is the United States.

And the second reason, of course, is that, funnily enough, one of the effects of the Plaza Accord was that, by the time the Plaza Accord came around, Japan was no longer interested in buying US treasuries. And as a result, the United States essentially restricted its access to US markets in a much bigger way. And so, essentially, Japan lost those export markets.

And it did not do what China is able to do. It perhaps could not do what China is able to do, being a capitalist country, which is massively reorient the stimulus for production away from exports and towards the domestic market, including the market for investment.

So I think that we are, maybe this is the cue at which we can talk about Japanification. So maybe you can start us off by commenting on this chart, and then Michael and I can jump in as well:

MICK DUNFORD: Ok, the blue line, of course, is the flow of loans to different sectors. So the blue line is the flow of loans to the real estate sector.

MICHAEL HUDSON: Only the Bank of China or by?

MICK DUNFORD:  All the banks. You can see from 2016, the share going to real estate has diminished very significantly, whereas, where it says industrial MLT, that’s medium and long term loans for industrial investment, you can see a very, very strong, steady increase in the share of loans going to industrial investment. In agriculture, it declines. And then also, that has actually increased since 2016. So this is a directing of investment towards manufacturing and towards the industrial sector of the economy.

So why is that? Well, I think the first thing one can say is that, in the past, basically, the growth drivers of the Chinese economy were, to some extent, export manufactures. But China was predominantly involved in processing activities, employing very unskilled labor and associated with very low levels of labor productivity.

So one of China’s goals is to significantly, basically, strengthen, upgrade the quality of these traditional industries, to make them digital, to make them green, and to radically increase productivity through a large-scale investment wave.

And then, secondly, we’re on the verge of a new industrial revolution, which Radhika has spoken about. So the aim in this case is, basically, to divert investment towards the industries that are associated with the next industrial revolution.

The other main growth drivers in the past, alongside this export sector, were obviously real estate, which, I mean, if you look at GDP by expenditure, was accounting probably with household appliances and furniture and household goods and so on, about 26, 27 percent of the economy.

But it’s a sector that’s associated with relatively low productivity, and of course, it was associated with very substantial speculation and generated very considerable financial instability.

So, as Radhika said, there will be, in dealing with this financial crisis, basically an underwriting of existing, of obligations to existing home buyers, and in the future, an attempt to establish a more sustainable housing market.

The other area of the economy was basically this sort of platform economy. But this platform economy was associated with very, very strong tendencies towards monopoly, and in the, about four or five years ago, a series of measures were adopted, basically, to restrict, some aspects of this platform economy, and other areas, like private tutoring, which was generating large disparities in the educational system, and is associated with the fact, that the cost of raising children in China is extremely high. I mean, it’s the second highest in the world after South Korea, actually.

So, these growth drivers, these old growth drivers, are basically seen as not offering potential to sustain the growth of the Chinese economy into the years ahead, and so there’s this attempt to look for new growth drivers. And basically, for that reason, you’ve seen this redirection of investment.

And I think one can distinguish that, from what happened to Japan, because basically, in Japan, industrial investment did not increase, largely, I think, because the profitability of investment was not sufficiently high. And also Japan, in a sense, adopted a neoliberal program. It didn’t implement industrial policies.

Whereas China is seeking to undertake this transformation, basically, through, it’s a kind of supply-side restructuring, driven by industrial policy, and driven by financial policies, providing strategic funding for industrial transformation.

Then linking that also to the transformation of education, to try to ensure that the output of the education system, in terms of skill profiles, and so on, corresponds much, much more closely with the profile of work and employment, with much more emphasis upon STEM, in the context of this new industrial revolution, radically raising productivity, and by radically raising productivity, you increase income, and ultimately, you’ll increase consumption, and so on.

So I think that the Japanification course is not one that China will follow, that China will actually address this need to innovate and transform its industrial system, in order to, in a sense, address the problems that are associated with the earlier drivers of Chinese development.

MICHAEL HUDSON: We probably need a whole other program to talk about the difference in structure. Real estate is the largest sector of every economy, and China is so different from Japan.

The Ginza district in Japan, right around the palace, that small district, was larger than all of the real estate value in California. So, we’re dealing with a huge debt finance explosion there, and then you have the largest collapse of property prices in Japan, everywhere, anywhere in the world.

In a way, what you’ve described brings us back to what we were talking about at the beginning of the show, about China’s structure. The effect of the real estate slowdown and falling in prices has a disastrous effect on localities, small villages and towns in China, who are dependent on real estate sales as funding their budget.

So, the real estate crash in China, if we’re talking about what policy is China going to take, how is it going to solve the problem of local budgets without solving it by creating a booming real estate market for towns to sell off their property to developers, and developers to make a profit selling off a property to private buyers, mainly.

I assume they’re not just selling it to the government to make a profit. I think there’s a lot of structure that I’d like to know. I don’t know what it is now, but it’s so different from what you have everywhere else.

I think that really is what I hope will be the focus of our show, the geopolitics of different real estate structures and the real estate tax that goes with it.

RADHIKA DESAI: That’s a really interesting question, and much of that we will be discussing in the second part of this show, which we’ll be recording in a week or so, I think.

But let me maybe then just bring this to a conclusion by simply agreeing with what both of you have said, which is that China has a very good chance, in fact, very likely, China is not going to follow the Japanification model because, as Michael is emphasizing, the structure of China’s economy and the imperatives generated by that structure are very different.

To name just one, if something is not profitable in a capitalist economy, it will not get done. Whereas in the case of the Chinese economy, the Chinese government can always say, well, if it’s necessary, we’ll do it even if it isn’t profitable, because it is necessary for the welfare of the people or the productive capacity of the economy, etc. So, profitability just does not play the role of a brake in the same way as it does in capitalist societies.

Secondly, the role of the state, both in terms of initiating new projects and taking responsibility for new projects, and we can already see in the current NPC and the discussions there that the role of the state is already once again expanding again in China, and it can continue to do so. And I think that’s a very good thing.

And remember also that, Mick, you emphasized in the case of when you were discussing one of the graphs, that the per capita GDP of China today is considerably lower than what it was in Japan, even in the late 80s and early 90s.

And that means that, number one, domestic consumption can be a big stimulus for further economic expansion. And secondly, of course, the industrial opportunities, the opportunities for a new industrial revolution are many, and China in particular, because of the important state role in the Chinese economy, the centrality of the state role in the Chinese economy, and the aim of the Chinese economy and the Chinese economy’s managers to develop China’s productive capacity in whatever way that works, not necessarily through private ownership.

These elements are actually going to ensure that China will exploit the opportunities of the new technologies much more effectively and execute a transition to the next industrial revolution much more successfully, and that will be an important road to avoiding what’s called Japanification.

MICK DUNFORD: You know, I think the difference is that Japan, I thought, in the 1980s was at the technological frontier, and China is not. But just, what Michael was referring to is the fact that in China, local government revenue came to depend to a very considerable extent on what is called land revenue.

You know, basically all land is state-owned, is either state-owned or owned by the rural collectives. But what happened was that if land was converted for use for urbanization, was converted for use for urbanization, for housing, then basically the local government could in effect sell leases, 90-year leases, or depending on the activity, different lengths of lease. They could sell these leases to developers. And then that revenue was used by local government to fund infrastructure.

To some extent that model has come up against limits. And I think, the issue Michael raised really concerns how in future will local government be funded, and will there be a reform in the system of taxation?

Will a property tax be introduced in order to generate government revenue rather than relying upon this land tax? Because of course that did encourage local government to allocate that land to people who are going to build housing for upper-income groups, because the implications for land value were under that situation, they would actually be higher rather than providing that land to construct housing for low income groups.

So, this issue of land revenue is one that has to be addressed basically by someone who’s an expert in public finance.

MICHAEL HUDSON: That should be what we talk about in the next show, I think.

RADHIKA DESAI: Great. So I think that we should bring this part of the show, the first part of this show to an end. And let me just do that by going back to our list of topics.

So just to conclude, we managed to cover the first four, although the question of Japanification and the alleged property bubble will resonate into all the rest of the topics, certainly the question of consumption, exports and China’s new growth strategy. So we will return to it.

But in the next [Geopolitical Economy] Hour, we will be talking about these topics, restricted consumption, exports, new growth strategy, and of course, China’s foreign economic policy.

So thanks very much both. Thanks to all the listeners. And we look forward to seeing you in another week or two. Thank you and goodbye.

eCONomics Part IV: Interest Rates Manipulation

In this part: Interest rates manipulation as a way of tackling inflation — one of the most shocking financial scams of all time; plus an update on de-dollarisation and No Plan B for Uncle $laughter

With thanks to our own Colin Maxwell of New Zealand.

Please see: Part 1 ; Part 2 ;  Part 3

Introduction

It should be of no shock to any of us by now as to the reason WW1 began a very short time after the U$ Fed was incorporated, and this set the tragic pattern for the next 111 years. This tiny group of bankster plutocrats were handed on a plate by Congress a giant counterfeit printing press – a privilege that these thieves would deploy to progressively impoverish the working classes of most of the planet.

I won’t go into this too deeply here as I covered the background of the Frankenstein-like creature from Jekyll Island in the link below – my April 2022 expose’, and the debilitating effect this dreadful bankster construct has had on the global financial scene ever since:

Midnight Train to Georgia

It remains my life’s mission to expose the fact that the Western central banking industry, and its plutocratic owners operating in the shadows, are the head of the human food chain and the underwriters of more than 90% of humanity’s wars, terrorism, and financial impoverishment.

The great news though is that humanity is being thrown a lifeline by the BRICS+/BRI blocs and their related initiatives. Indeed all we have to do is to summon up the presence of mind to recognise this new reality and to reach out and grab the opportunity with both hands. The background of this new global paradigm was explored in Part III of this sequel –

Banking 2.0

The solution will be multi-faceted as it will involve a new global paradigm – never again will a single national currency have dominance – the new system will include a novel trade-only settlement instrument which will be stable, hard backed, and yet still able to provide adequate liquidity for the participating members’ productive economies.

In reality, WW1 never ended – WW2 was a follow-on with a brief respite of barely one generation in between, paving the way for the future hybrid financial, and techno, forever-wars. These, including the COVID debacle and the great poisoning with chemicals and pharmaceutical toxins, are simply a continuation of the same families pulling the strings from the shadows.

This is the business of human butchery and their intentions are becoming more explicit and outrageous as each decade passes by. In every sense of the word, this plutocratic network is a blatant terrorist organisation and needs to be dealt with accordingly. The rules of engagement should be the same and history reminds us that the only sure-fire way to deal with organisations like this is to permanently cut off their funding.

Because the New York Fed is the most outrageous model ever devised and has become the number one money spigot of the globe, this is precisely the place to start. This has never been more urgent as it is painfully obvious that there is a push for another bank run crisis which the owners of the banking cartel think will give them the crisis excuse to usher in a new retail central bank digital currency (CBDC) system where every man and his dog can have an account within the “Federal Reserve” system. This is their grand plan, which if successful would give the commercial banking cartel total control of every aspect of our lives through a social credit control and tracking system of all retail account holders.

1. Professor Richard Werner

“empirical evidence is that interest rates are a lagging indicator and a farcically ineffective monetary tool”

paraphrased/quoted from… https://soranomics.com/#content_20_fancybox-8

As Werner points out, it is not interest rates, but bank credit that determines economic growth, simply because ~97% of the money supply in our Western fiat currencies is created out of thin air by privately owned commercial banks.

There is zero basis for the official narrative that higher interest rates lead to lower growth and that low interest rates lead to high growth.

As with most aspects of eCONomics the quickest way to get straight to the truth is to simply assume the 180˚ polar opposite of the official narratives. Interest rates are simply not useful as a monetary policy tool – PERIOD! (23:30)

Interest rates actually follow growth – so where on earth did this idea come from that interest rates are this key variable? – it is not based on empirical evidence but on the concept of equilibrium which is based on no less than 8 assumptions none of which hold up in the real world…

1. Perfect information
2. Complete markets
3. Perfect competition
4. Instantaneous price adjustment
5. Zero transaction costs
6. No time restraints
7. Profit maximisation of rational agents
8. Nobody is influenced in any way by the actions of others

(29:00) The methodology in Economics is the Deductive Method – reverse engineering AKA Charlatanism.

2. eCONomics

eCONomics — the pioneer pseudo-science that paved the way for other disciplines to follow as a tool of central planning and globalist agendas

Karl Popper called this the ‘immunising stratagem’ which scientists fancied could guard their theories from being challenged by the use of reverse engineering in what became known as the ‘deductive approach.’  This is my interpretation of the process…

1. Predetermine a conclusion that supports the banking cartels’ grand theft from Mainstreet
2. Invent a model that can give you that contrived conclusion
3. Identify the false maxims that can propagate the lie and present them as facts
4. Present these steps in the reverse order
5. The network that has the key to the giant printing press then buys up all of the networks and agencies required to manufacture the narrative, even when it is nothing more than a bunch of myths premised on deliberate lies

3. How high would hikes need to go to arrest inflation?

High enough that they cripple the real economy before there is any ‘measurable effect’ (sic) on what they labelled ‘inflation’

Poet Lawrence Ferlinghetti asked… “whether man must burn down his house to roast his pig…”

The current Western neo-classical monetary policy used to tackle inflation is precisely that scenario.

Worse still, history illustrates that interest rate hikes have to be so utterly brutal that they need to be at the very least at the level of the true inflation rate, or higher – Paul Volker did this in the 1980s when the rates were pushed above 20%. This was construed as successful from the point of view that it appeared to halt inflation when all it had done was destroy enough of the economy and liquidity to make sure ‘inflation’ was halted.

In 1979 the federal funds rate had averaged 11.2% and Volker took them to a peak of 20% in March 1980. The prime rate topped out at 21.5% in 1981, which heralded (surprise, surprise, NOT) a rise in unemployment to over 10% and the 1980-1982 depression.

“Volcker’s Federal Reserve board elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of high-interest rates on the construction, farming, and industrial sectors, culminating in indebted farmers driving their tractors into Washington, D.C. and blockading the Eccles Building.
US monetary policy eased in 1982, helping lead to a resumption of economic growth.”… Wiki quote.

Although I am a great admirer of Ron Paul – IMO the quote below reveals that even he was not aware of the utter falsehood of attempting to use rate hikes as a constructive monetary tool to address inflation.

“Being in Congress in the late 1970s and early 1980s and serving on the House Banking Committee, I met and got to question several Federal Reserve chairmen: Arthur Burns, G. William Miller, and Paul Volcker. Of the three, I had the most interaction with Volcker. He was more personable and smarter than the others, including the more recent board chairmen Alan Greenspan and Ben Bernanke.”

Volcker may well have been smartest, but in my opinion all three wreaked havoc on Mainstreet and massively rewarded the financial economy at the expense of families, SMEs, and the productive economy. As Volcker aged, he became more critical of the banking industry but that was long after he had spent his career indulging and implementing most of the destructive hoaxes of neo-classical eCONomics.

Other features of Volcker’s career…

• A prominent member of the Trilateral Commission which was founded by David Rockefeller, Zbigniew Brzezinski, and Jimmy Carter
• A long association with the Rockefeller family including in his position at Chase Bank
• A long-standing member of the Bilderberg Group

SUMMARY:  interest rate hikes are not an effective monetary tool to address inflation – on the contrary, they instantly feed inflation just as hikes in energy prices do – you do not even require the most basic economic nouse to understand this principle – it should be self-evident to anyone with an IQ even approaching room temperature.

4. Safe Havens in times of financial strife – where are they now?

In the 1980s the level of total debt was so much less than it is now that the entire financial meltdown was at a totally different level. Today just the Govt debt alone is a death spiral in itself, with an extra $1 trillion added every 100 days.

In 2024 the U$ will have to issue $10 Trillion in Treasury paper to finance more deficits and to roll over old paper at much higher interest rates. The revised cost of this debt will rise from ~$1 Trillion to $1.5 Trillion. This is a debt spiral where more and more money has to be borrowed just to pay the interest back – paying down debt is not even on the radar.

All of the big 5 Western fiat currencies have this problem including the three sometimes referred to as ‘default currencies’ – the dollar, the Yen, and the Swiss Franc – these used to be seen as safe havens to hide when the financial/geopolitical shite hit the fan. Now none of these are safe any longer, and so the pressure will really come onto these currencies as there are now viable alternatives that countries can use in their accelerating de-dollarisation strategies – these include…

• Gold stacking by central banks — this is at an all-time historical high at around 1000 tons per annum for the last few years – this is a no-brainer, especially now that Gold is a first-tier asset under the new Basel III regulations – this facilitates the process, out of plain sight.
• Silver – although not monetized like gold under the new international banking regulations, at a 90:1 valuation compared to gold at a historical average ratio of ~16:1 this has to render silver the most undervalued commodity on the planet – silver makes for a fascinating story given that it is both a monetary and industrial commodity and the fact that 85% is mined as a by-product of other PMs. Silver is the absolute wildcard when the big reveal of the Western fiat currencies commences – at 16:1 with gold at $2,500 oz that would put silver at $156, with gold at $3,000 – silver would be at $187, gold at $5,000 – $312, and at $10,000 – $624! Another way of looking at it is that silver has basically been demonetised since 1873, and if it reverted back to its primary historical value as a monetary metal, then it would be around 1/10 of the value of gold per oz, which with gold at $2000 per oz, that would price silver at $200. IOW two entirely different methods render a similar result.
• Any and all commodities that are needed in the future
• Crypto-currencies — if you trust them enough – although arguably some are more trustworthy than certain national currencies – they also carry the added bonus of being another way of disenfranchising the private banking cartel

To me the Western safe havens no longer exist, as the main Western fiat currency economies now face a very unpleasant binary choice between either…

A. Severe hyper-inflationary depression, or
B. Severe and extended debt liquidating depression

5. A tribute to Pepe Escobar’s recent work in Russia

What a privilege for us all to have such direct access to Pepe’s insights. I regard him as the undisputed global high priest in terms of geopolitical analysis and journalism. I am most certainly not alone in this view, judging by the audiences he pulls in terms of readers and interviews with people of note in this fight for multi-polarity and who are involved in developing the architecture of a new paradigm in global socio-economic methods and relations.

His audience with Glazyev, whom I have enormous respect for as an honest and courageous economist, was particularly intriguing, and not the least because some of the revelations were done off the record. My own personal hypothesis is that the entire development of the new trade instrument is making great progress, but that there is no point in rushing the announcement of the final details, as long as there is still ample opportunity for BRICS+ countries to gold stack… see above chapter (4) first bullet point.

Of course, this opportunity is entirely courtesy of the U$ obsession with massively shorting gold in this pathetic attempt to hide the plummeting purchasing power of their currency. It could be any day now when an entity insists on a large physical tonnage and the physically driven price discovery process begins. When that happens the gold price will break out and it will be time for the various player’s hands to finally be revealed.

In the meantime, the RoW carries on carefully checking out further de-dollarisation strategies and putting the finishing touches on the new trade instrument. As I said previously, the BRICS+ bloc has an enormously strong hand, whilst all the West has is the grim reality of an impending debt spiral.

Glazyev sees the next stage as detaching commodity prices from the dollar and quoting them in other units. This involves the new model based on two different baskets – a basket of currencies of member countries, and also a basket of exchange commodities. The fact that this currency will be so inherently stable will make it more attractive than the dollar, the pound or the euro.

Technically the trade currency instrument is almost ready, and the process only requires the political will and acceptance by India and China. In the meantime, the transition to settlements in national currencies is well underway.

The trade instrument will be backed not only by the national currencies but by the huge reserves of the nominated commodities that combine to back up the new international settlement currency. This new currency is not a substitute for national currencies.

Once all of the technical issues are finalised, they will prepare an international treaty that will be open to accession by all other countries wanting to join. Glazyev is clearly in no hurry and has put a time frame of within 2 years from when he made these announcements back in late October 2023.

Gazyev listed these advantages…

• Guarantees are created against attempts by outsider countries to interfere in mutual member relations
• Each member country’s trade and position in the financial world is much more secure
• Gives all members an opportunity for equal trade, economic, and investment opportunities
• The distribution of commission income will be regulated by an international treaty
• All of this will be transparent to make certain that no country abuses the issue of the trade currency

5. SUMMARY – The long and the short – literally!

None of this reality is being addressed by Uncle Slaughter and clearly, they have no plan B. A giveaway is the fact that actual military spending for 2022 ended up at a mind-boggling $1.537 Trillion – more than twice the publicly acknowledged level. If nominal GDP is around that $20 trillion then that military budget is a truly obscene 7% of GDP, and equal to more than the next 40 biggest spenders combined.

In fact, the next 40 countries spending totalled $1.431 trillion – some $100 billion short of the U$’s $1.537T and with Romania coming in at #39 in the list at $5.2 billion, it could well be the equivalent of the combined 60 or more highest military spenders.

I eventually got sick of adding and gave it up – besides, I was in dire need of a wee dram.

Colin Maxwell
( March 12, 2024)

Banking 2.0

Haiti – A Paradise for State Crime

Haiti: shaping the terrain for massive exploitation and extraction of huge hydrocarbon reserves

For GlobalSouth.co by Peter Koenig
Economist, Geopolitical Analyst
26 February 2024

In his recent article “The Destabilization of Haiti: Anatomy of a Military Coup d’Etat“, Professor Michel Chossudovsky memorializes 29 February 2024 as the 20th anniversary of the coup d’État against Haiti’s elected president Jean-Bertrand Aristide.

He also describes the military motives for controlling Haiti, namely to destabilize the country and to plunge it into constant chaos. This is precisely what has happened. Haiti is in a constant state of near absolute poverty – by far the poorest country in all Latin America – according to official UN / World Bank indices.

Is there a reason?

As we will see, Haiti is also one of the world’s richest countries, per capita, judged by available natural resources – oil and gas. Discovered before the 2010 earthquake and confirmed by the tremendous 7.0 Richter seism.

Haiti’s Potential Hydrocarbon Deposits

The Economic Commission for Latin America (ECLA), issued in May 1980 a report under the Caribbean Development and Cooperation Committee (CDCC), describing the likelihood of large oil deposits in the Caribbean, including off-shore of Port-au-Prince, Haiti. (See this) Haiti is also said to have trillions of dollars-worth of off-shore natural gas. (See this)

These discoveries were likely made in the 1970s and 1980s, perhaps earlier, by US satellite imaging. US satellites have mapped the world for hydrocarbon resources already at least 50 years ago. Such information used to be available on internet – no longer.

Brief Haitian History and Background

François Duvalier, also known as Papa Doc, served as the president of Haiti from 1957 until his death in 1971. He was succeeded by his 19-year-old son, Jean-Claude Duvalier, nicknamed “Baby Doc”.

The Duvalier dynasty was an autocratic hereditary dictatorship, indiscriminately killing people who dared interfere with their government style. The dynasty empire lasted almost 29 years, from 1957 until 1986, spanning the rule of the father-and-son duo, François and Jean-Claude Duvalier. Both served the United States’ political and economic interests.

The sociopolitical situation in Haiti deteriorated seriously under the regime of Baby Doc and his powerful wife. In 1986, President Reagon asked Jean-Claude to leave Haiti, so that the US could “help install” a more stable and serious government. In February 1986 Baby Doc fled to France in a US Airforce jet.

The end of the Duvalier dynasty brought hope for “freedom” and democracy to the Haitian people. There was a succession of short-lived Presidents until 1991, when Jean-Bertrand Aristide was first elected in February 1991. His Presidency lasted 234 days, when a brief military government took over.

In the ten years following Mr. Aristide’s first election, the US-supported political turmoil in Haiti, with a succession of Heads of State, during which Mr. Aristide was four times elected President.

His last Presidency started in February 2001 and ended 3 years later, when Mr. Aristide, Haiti’s first democratically elected President, was quietly deposed by a US-guided coup on 29 February 2004 and deported to South Africa, where he presumably still lives in exile. He was discouraged by the US State Department from returning to Haiti.

This coup was planned well in advance, by such unlikely allies, as progressive “socialist” President, Luiz Inácio Lula da Silva – Lula, for short – and George W. Bush, both then Presidents of their respective countries – Brazil and United States.

By now we know that Lula has nothing of progressive, and even less of “socialist” in him. He is and has been totally sold to the usurping west, to Wall Street and the IMF – and that already during his first two terms as President of Brazil, 2003 – 2011.

Both, Lula and Bush are traitors of their countries – but Lula, a make-believe socialist — has deeply betrayed his country during his first two terms, and now, since 1 January 2023, in his third term, but also the people of Haiti.

After associating with Wall Street and the IMF during his first two terms, Lula is again allying with the money brokers – the debt machines, as one may call them.

Humiliation of the French and Exceptionalism

Remember – during the French Revolution (1789-99), French black slaves in Haiti launched the Haitian Revolution (1791-1804), led by Toussaint l’Ouverture, a former slave and black general of the French Army. After 12 years of struggle and conflict, Napoleon Bonaparte’s forces were defeated, and on 1 January 1804 Haiti declared her sovereign independence.

Haiti, thus, became the first independent nation of Latin America and the Caribbean, and the first country in the Americas to eliminate slavery. Haiti is the only state in history established by a successful slave revolt. See Wikipedia for more details.

In the 1980s, with close to 200 years of independence (on January 1, 2024 Haiti celebrated 220 years of independence), a black, sovereign, autonomous island in the Caribbean was perceived as a “danger” for the Unted States’ “National Security”. There was already a “Communist Cuba” to deal with just 90 miles (150 km) from the southern Florida border. A black independent, uncontrolled, Haiti was beyond limits for a still racist white US supremacy.

Plus, at that time, Haiti’s riches in petrol and gas were already known to Washington, though, most likely not to Haiti.

Thus, the US, French and Canada ganged up against Haiti’s government to control the island and her riches. Chaos was the modus operandi – and US-induced chaos and crime reign up to this day over Haiti.

What is important to know – that there are no coincidences.

In the 1970’s / 1980s and perhaps up to early 1990s, huge petrol resources were satellite-discovered deep under the sea floor off-shore from Port-au-Prince, Haiti. To get to these resources is expensive. Unless they are brought up closer to the surface – for example by an earthquake, that cracks the tectonic plates, letting pressure bring the oil closer into shallower areas.

The 2010 earthquake was planned for precisely that purpose.

On 12 January 2010, a 7.0 magnitude earthquake struck Haiti, leaving its capital Port-au-Prince devastated. About 220,000 people were reportedly killed.

Among other aid, the Clinton Foundation was supposed to bring order and development back to Haiti, after the seismic devastation. In fact, the contrary is true. More than ten years later, chaos and crime continue dominating the Haitian part of the island of Hispaniola.

Is there a purpose behind it, other than that the Clinton Foundation enriched itself by the multi-million-dollar donations it received to help restore social and economic order in Haiti?

According to the World Atlas (January 2019), recent findings have confirmed Haiti’s enormous oil and gas reserves. Discoveries show that the nation of Haiti might have some of the largest oil reserves in the world. They are estimated to be potentially larger than those of Venezuela. See this for more details.

This amply explains why the United States will not leave Haiti to her independence. The monetary stakes, the riches are too high.

———

Today, the same Lula, who helped instigate the 2004 coup against President Aristide, is “volunteering” in setting up a UN occupation / security force in Haiti, consisting mainly of Brazilian troops. This military occupation is supposed to bring back order and promote economic development.

They will also prepare the ground – or waters – for massive exploitation and extraction of the huge hydrocarbon reserves. This is the military’s hidden agenda. Of course, not part of the official terms of reference.

May Haiti remember her status of the first independent state in Latin America – and rise again.
These hydrocarbon riches belong to the people of Haiti.

——-

Peter Koenig is a geopolitical analyst and a former Senior Economist at the World Bank and the World Health Organization (WHO), where he worked for over 30 years around the world. He lectures at universities in the US, Europe and South America. He writes regularly for online journals and is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed; and  co-author of Cynthia McKinney’s book “When China Sneezes: From the Coronavirus Lockdown to the Global Politico-Economic Crisis” (Clarity Press – November 1, 2020)

Peter is a Research Associate of the Centre for Research on Globalization (CRG).
He is also a non-resident Senior Fellow of the Chongyang Institute of Renmin University, Beijing.

The Fraud of Plastic Recycling

How Big Oil and the plastics industry deceived the public for decades and caused the plastic waste crisis

by The Center for Climate Integrity: https://climateintegrity.org/plastics-fraud

Underpinning the plastic waste crisis is a campaign of fraud and deception that fossil fuel and other petrochemical companies have created and perpetuated for decades.

Through new and existing research, “The Fraud of Plastic Recycling” shows how Big Oil and the plastics industry have deceptively promoted recycling as a solution to plastic waste management for more than 50 years, despite their long-standing knowledge that plastic recycling is not technically or economically viable at scale.

Now it’s time for accountability. |PDF|

Polluters knew decades ago that plastic recycling was “virtually hopeless.”

Explore the evidence that Big Oil and the plastics industry knew they were deceiving the public about plastic recycling, including never-before-seen documents published here for the first time. |documents|

Like permanent wars, the contrived environmental waste worldwide is staggering. Not merely to dump unwanted waste that is expensive to process at home abroad among the poor nations, but it appears an excessive, ostentatious effort as well — to lower beauty worldwide, fostering uglier lower thoughts and a submissive sheeple, and to help legitimize the coming wars on petroleum producers — of which Russia, Iran, Libya and Venezuela are merely the first wave. It has led to the Climate Agenda of disinvestment in new energy exploration, “decarbonization” and withdrawal of petroleum from developed countries, as seen in Europe most vividly. All the justifications used are illogical and unscientific, as with the premise above of recycling.. No crisis is wasted, pun unintended. We observe the metrics of increased societal controls, depopulation and relentless work to control energy sources..

Defusing the Derivatives Time Bomb

The “protected class” is granted “safe harbor” only because their bets are so risky that to let them fail could crash the economy. But why let them bet at all?

by Ellen Brown at the ScheerPost.

This is a sequel to a Jan. 15 article titled “Casino Capitalism and the Derivatives Market: Time for Another ‘Lehman Moment’?”, discussing the threat of a 2024 “black swan” event that could pop the derivatives bubble. That bubble is now over ten times the GDP of the world and is so interconnected and fragile that an unanticipated crisis could trigger the collapse not just of the bubble but of the economy. To avoid that result, in the event of the bankruptcy of a major financial institution, derivative claimants are put first in line to grab the assets — not just the deposits of customers but their stocks and bonds. This is made possible by the Uniform Commercial Code, under which all assets held by brokers, banks and “central clearing parties” have been “dematerialized” into fungible pools and are held in “street name.”

This article will consider several proposed alternatives for diffusing what Warren Buffett called a time bomb waiting to go off. That sort of bomb just detonated in the Chinese stock market, contributing to its fall; and the result could be much worse in the U.S., where the stock market plays a much larger role in the economy.

The Chinese Derivative Crisis

A Jan.30 article on Bloomberg News notes that “Chinese stocks’ brutal start to the year is being at least partly blamed on the impact of a relatively new financial derivative known as a snowball. The products are tied to indexes, and a key feature is that when the gauges fall below built-in levels, brokerages will sell their related futures positions.”

Further details are in a Jan. 23^rd article titled “’Snowball’ Derivatives Feed China’s Stock Market Avalanche.” It states, “China’s plunging stock market is leading to losses on billions of dollars worth of derivatives linked to the country’s equity indexes, fuelling further selling as retail investors offload their positions…. Snowball products are similar to the index-linked products sold in the 2008 financial crisis, with investors betting that U.S. equities would not fall more than 25% or 30%,” which they did.

Chinese shares rose on Feb. 6, as officials took measures to prop up the ailing market, including imposing new “zero tolerance” curbs for malicious short selling.

The Greater U.S. Threat

The Chinese stock market is much younger and smaller than that in the U.S., with a much smaller role in the economy. Thus China’s economy remains relatively protected from disruptive ups and downs in the stock market. Not so in the U.S., where speculating in the derivatives casino brought down international insurer AIG and investment bank Lehman Brothers in 2008, triggering the global financial crisis of 2008-09. AIG had to be bailed out by the taxpayers to prevent collapse of the too-big-to-fail derivative banks, and Lehman Brothers went through a messy bankruptcy that took years to resolve.

In a December 2010 article on Seeking Alpha titled “Derivatives: The Big Banks’ Quadrillion-Dollar Financial Casino,” attorney Michael Snyder wrote, “derivatives were at the heart of the financial crisis of 2007 and 2008, and whenever the next financial crisis happens, derivatives will undoubtedly play a huge role once again…. Today, the world financial system has been turned into a giant casino where bets are made on just about anything you can possibly imagine, and the major Wall Street banks make a ton of money from it. The system … is totally dominated by the big international banks.”

The Speculators Dominate the Regulators

In a 2009 Cornell Law Faculty publication titled How Deregulating Derivatives Led to Disaster, and Why Re-Regulating Them Can Prevent Another, Prof. Lynn Stout proposed stabilizing the market by returning to 20^th century derivative rules. She noted that derivatives are basically wagers or bets, and that before 2000, the U.S. and U.K. regulated derivatives primarily by a common‐law rule known as the “rule against difference contracts.” She explained:

“The rule against difference contracts did not stop you from wagering on anything you liked: sporting contests, wheat prices, interest rates. But if you wanted to go to a court to have your wager enforced, you had to demonstrate to a judge’s satisfaction that at least one of the parties to the wager had a real economic interest in the underlying and was using the derivative contract to hedge against a risk to that interest.… Using derivatives this way is truly hedging, and it serves a useful social purpose by reducing risk.

… Under the rule against difference contracts and its sister doctrine in insurance law (the requirement of “insurable interest”), derivative contracts that couldn’t be proved to hedge an economic interest in the underlying were deemed nothing more than legally unenforceable wagers.

… Hedge funds, for example, should really call themselves “speculation funds,” as it is quite clear they are using derivatives to try to reap profits at the other traders’ expense.”

The rule against difference contracts died in 2000, when the US embraced wholesale deregulation with the passage of the Commodity Futures Modernization Act (CFMA):

“The CFMA not only declared financial derivatives exempt from CFTC or SEC oversight, it also declared all financial derivatives legally enforceable. The CFMA thus eliminated, in one fell swoop, a legal constraint on derivatives speculation that dated back not just decades, but centuries. It was this change in the law—not some flash of genius on Wall Street—that created today’s $600 trillion financial derivatives market.”

The Casino Gets Special Privileges

Not only are speculative derivatives now legally enforceable, but under the Bankruptcy Act of 2005, derivative securities enjoy special protections. Most creditors are “stayed” from enforcing their rights while a firm is in bankruptcy, but many derivative contracts are exempt from these stays. Similarly, under the Dodd Frank Act of 2010, derivative claimants have “super-priority” in the bankruptcy of a financial institution. They are privileged to claim collateral immediately without judicial review, before bankruptcy proceedings even begin. Depositors become “unsecured creditors” who can recover their funds only after derivative, repo and other secured claims, assuming there is anything left to recover, which in the event of a major derivative crisis would be unlikely.

That’s true not only of the deposits in a bankrupt bank but of stocks, bonds and money market funds held by a broker/dealer that goes bankrupt. Under the Bankruptcy Act of 2005 and Sections 8 and 9 of the Uniform Commercial Code (UCC), “safe harbor” is provided to entities described in court documents as “the protected class.” The customers who purchased the assets have only a “security entitlement,” a weak contractual claim to a pro rata share of a residual pool of fungible assets all held in the name of Cede & Co., the proxy of the Depository Trust and Clearing Corp. (DTCC). As Wall Street financial analyst John Rubino put it in a Jan. 27 podcast:

“What we used to think of as a bank bail-in where they take your deposit in order to support a failing bank, that is now spread across the entire financial economy where whatever you have in an account anywhere can just disappear, because they’re going to transfer ownership of it to these big dominant entities out there in the financial system that need those assets in order to keep from blowing up.”

Derivative speculators are considered “secured” because they post a portion of what they could wind up owing as “margin,” but why that partial security is superior to the 100% security posted by the depositor or purchaser is not explained. The “protected class” is granted “safe harbor” only because their bets are so risky that to let them fail could crash the economy. But why let them bet at all?

The Solution of the Regulators

The fix of the G20 leaders following the global financial crisis, however, was to force banks to clear over-the-counter derivatives through central counterparties (CCPs), which stand between buyer and seller and protect either party if the other blows up. By March 2020, 60% of credit default swaps and 80% of interest rate swaps were centrally cleared. The problem, as noted in a December 2023 publication by the Bank for International Settlements, is that these measures taken to protect the system can actually amplify risk.

CCPs tend to ask for more collateral than banks did in the pre-crisis world; and when a CCP hikes its initial margin requirement to cover the risk of default, this applies to everyone in the market, meaning cash calls are synchronized. As explained in a May 2022 Reuters article:

“It’s logical that CCPs ask for more collateral during a panic: that’s when defaults are most likely. The problem is that margin calls seem to have made things worse. In March 2020, for example, a so-called “dash for cash” saw investors liquidate even prime money-market funds and U.S. Treasury securities.

… [R]ampant margin calls have intensified a financial panic twice in as many years, with central banks effectively bailing out markets in 2020. That’s better than in 2008, when taxpayers had to step in. But the problem of margin calls remains unsolved.

… Central counterparty (CCP) clearing houses should consider asking clients for more collateral during good times to reduce the risk of destabilising margin calls during a financial panic, a Bank of England official said on May 19.”

Yet all this, as Michael Snyder observes, is to allow the big international banks to run the largest derivatives casino that the world has ever seen. Why not just shut down the casino? Prof. Stout’s suggested solution is for Congress to return to the pre-2000 rule under which speculative derivative bets were not enforceable in court. That would include reversing the “superpriority” privileges in the Bankruptcy Act of 2005 and the Dodd-Frank Act. But it won’t be a quick fix, as Wall Street and our divided Congress can be expected to put up a protracted fight.

What If the DTCC Goes Bankrupt?

In a 2015 law review article titled “Failure of the Clearinghouse: Dodd-Frank’s Fatal Flaw?,” Prof. Stephen Lubben points to a more ominous risk from pushing all derivatives onto exchanges; and that concern is shared by former hedge fund manager David Rogers Webb in his 2024 book “The Great Taking.” The exchanges are supposed to be safer than private over-the-counter trades because the exchange steps in as market maker, accepting the risk for both sides of the trade. But in a general economic depression, the exchanges themselves could go bankrupt. No provision for that is made in the Dodd-Frank Act, which purports to decree “no more bailouts.” Still, reasons Prof. Lubben, the government would undoubtedly step in to save the market from collapse.

His proposed solution is for Congress to make legislative provision for nationalizing any bankrupt exchange, brokerage or Central Clearing Counterparty before it fails. This is something to which our gridlocked Congress might agree, since under current circumstances it would not involve any major changes, wealth confiscation or new tax burdens; and it could protect their own fortunes from confiscation if the DTCC were to go bankrupt.

Other Possible Federal Solutions

Another alternative that not only could work but could fix Congress’s budget problems at the same time is to impose a 0.1% tax on all financial transactions. See Scott Smith, A Tale of Two Economies: A New Financial Operating System, showing that U.S. financial transactions (the financialized economy) are over $7.6 quadrillion, more than 350 times the U.S. national income (the productive economy). See my earlier article summarizing all that here. On a financial transaction tax curbing speculation in derivatives, see also here, here and here.

There are other possible solutions to customer title concerns. There is no longer a need for the archaic practice of holding all securitized assets in the street name of Cede & Co. The digitization of stocks and bonds was a reasonable and efficient step in the 1970s, but today digital cryptography has gotten so sophisticated that “smart contracts” can be attached by blockchain-like distributed ledger technology (DLT) to digital assets, tracking participants, dates, terms and other contractual details. The states of Delaware and Wyoming have explored maintaining corporate lists of stockholders on a state-run blockchain; but predictably, the measures were opposed. The practice of holding assets in street name has proven very lucrative for the DTCC’s member brokers and banks, as it facilitates short selling and the “rehypothecation” of collateral.

In October 2023, the DTCC reported that it has been exploring adopting DLT; but the goal seems only to be speedier and safer trades. No mention was made of returning registered title to the purchasers of the traded assets, which could be done with distributed ledger technology.

South Dakota’s Innovative Solution

The most readily achievable solution is probably that in a South Dakota bill filed on Jan. 29.  The bill is detailed in a Feb. 2 article titled “You Could Lose Your Retirement Savings in the Next Financial Crash Unless Others Follow This State’s Lead”, which observes:

“… [I]f your broker … were to go bankrupt, the broker’s secured creditors (the people to whom the broker owes money) would be empowered to take the investments that you paid for in order to settle outstanding debts….

To avoid a catastrophe in the future, a nationwide movement is desperately needed to alter the existing Uniform Commercial Code. Of course, that won’t be easy to accomplish, especially because bank lobbyists and other powerful financial interests will almost certainly fight kicking and screaming to stop policymakers from taking away their advantage over consumers.

The good news is, this “great taking” can be stopped at the state level. Americans don’t need to count on a divided Congress to get the job done. Because the UCC is state law, state lawmakers can take concrete steps to restore the property rights of their constituents and protect them in the event of a financial crisis.

On Monday, South Dakota legislators introduced a bill that would do just that. The legislation would ensure that individual investors have priority over securities held by brokerage firms and other intermediaries.

It would also alter jurisdictional provisions so that cases are determined in the state of the individual investor, rather than the state of the broker, custodian or clearing corporation. This would ensure that individual investors are able to rely on the laws of their local state.”

Hopefully, other states will follow South Dakota’s lead. Tennessee, for one, is reported to have such a bill in the works.

~~~

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of thirteen books including the best-selling Web of Debt. Her latest book is Banking on the People: Democratizing Money in the Digital Age and her 400+ blog articles are at EllenBrown.com.

Solutions to the Western Train Wreck

For GlobalSouth.co by our Colin from New Zealand

Solutions Unearthed by a Tale of Two Economies

A SEQUEL TO PART 1 – ‘The Western Train Wreck‘ – and an effort to promote a solution orientated discussion

It seems that what I regard as an extremely important book , Scott Andrew Smith’s, ‘A Tale Of Two Economies’ released in 2023, has gone relatively unnoticed.

Of course this is entirely to be expected because of the entrenched ‘thinking’ of the eCONomists and commentators who nurture and cheerlead the ruinous Western status quo.

It turns out that the staggering size of the total volume of payments in the highly financialised U$ economy was not even known until the Fed began building the means to track payments in collaboration with the Bank for International Settlements (BIS).

Indeed, given the degree to which the Fed is compartmentalised, only a select few of them even now have a clue about this. Politicians of course were just as out of touch – I imagine that this remains the case as to date I have seen no mention of this on the MSM, let alone alternative media – hence the idea to make this subject part II of my sequel.

The Dream Team – FTT and the PBS

FTT = Financial Transaction Tax
PBS = Public Banking Solution

What I see are two distinctly different, although complimentary, initiatives which between the two could turn even the most broken financial model into a socio-economic miracle within a few short years – indeed, most often within as little as one term of government.

Both systems are stunningly simple mechanisms, which is frustrating as all hell, because that in turn generates the default reaction of at least 95% of the population – they dismiss the concept without knowing any details on the grounds that if it is that simple, it would have been done long before now.

The other automatic default reaction is that these solutions (especially any mention of Basic Income) are seen as far too ‘socialist’ and as such are the thin edge of the wedge in a slide back into communism.

Scott Smith addresses this reaction directly…

“Communism is premised on the notion that it is the worker who creates profit in the products that are produced, so if a company makes a profit after having paid its workers, the worker has been shortchanged for the value they created.

Communism was conceived of before automation as a response to the abject poverty of the 19th century. It was fuelled by the huge gap between the rich and poor, and it rejected the notion that profiting from capital investments could ever be good for society.

The issues that communism sought to address were real, and these issues still exist as shown in this book, though not to the extent they did in the 19th century. The fact that we have a middle class today shows that workers are better paid. Yet there are many who work hard and still live in poverty. The solutions in this book address these problems in a way that fuels economic growth instead of destroying the engine of our wealth, as communism does.”

Of course a huge part of the neoliberal strategy to engineer their vision of a new world ‘order’ (sic) is to point the finger at a communist takeover when in essence it is already a dead duck – NB – from 30% in the 1980s the percentage of global population ruled by technically communist governments is today down to a minuscule 0.5%.

And why the massive plummet down to 1/60th of its former glory within 40 years – BECAUSE COMMUNISM SIMPLY DOESN’T WORK – PERIOD!

In fact I have pointed out before that the U$ fought a horrible war in Vietnam, ostensibly with the aim of stamping out communism. The U$ lost the war, and then in the height of irony within a few decades communism actually defeated itself as the country of 99 million people organically transitioned into a free-market capitalist model.

The current 0.5% remnant consists of minnows Laos, North Korea and of course Cuba. What the socialist!, socialist!, socialist! panic brigade seems to miss is the fact that the US economy is ‘socialist’ anyway, only in the most obscene way possible, where the costs are born by Mainstreet, and the profits are socialised and funnelled directly into the pockets of the thieving kleptocrats.

Mainstreet and the Productive Economy Languishes

Meanwhile the bottom 50% of the population’s share of financial assets shrinks in spite of the trillions of dollars of stimulus flooding the economy.

Charles Hugh Smith has just written an excellent article pointing out how these “recession proofing” machinations by the criminal Fed have once again robbed Main Street and made a monster recession a mathematical certainty – his chart here is a real eye-opener – a reminder that everything the ‘Creature from Jekyll Island’ turns its hand to is a rich man’s trick.

The bottom 50% cohorts share of the financial assets gained a minuscule 0.2%, whilst the kleptocrats pocketed around $10 trillion.

The Two Economies

#1 Is the real and productive economy that generates genuine wealth but is penalised because it carries the vast majority of the tax burden.

#2 Is the parasitic casino financial economy that pays negligible taxes with the cartel-style commercial banks diverting multi-billions in interest payments into the hands of their oligarch owners.

This is the very foundation of the network that orchestrates the forever wars which are now hybrid techno/military in nature, in which the global private banking industry finances both sides of all of these conflicts.

The billions of interest payments that get sucked out of Western domestic economies go straight into their coffers. This same network brought us the COVID war as well. They have literally trillions of dollars at their disposal to finance ever more innovative ways of killing and thieving from Main Street.

A MINUSCULE 0.25% FTT – replacing all other taxes and funding Basic Income, Earned Income Credits, Healthcare, child care credits, free college and higher education – it sounds too good to be true doesn’t it – where on earth will this money come from?

The fact is that there is a monumental disparity between the material and monetary economies with the size of the material economy being roughly the size of the GDP, which in the U$ example in 2020 was $25.6 trillion.

However as the illustration shows, in the year 2020 the total payments were $7,625 trillion or $7.625 quadrillion!

Even though many payments like commodity trading, various options, cryptocurrency trades and EFFs have been left out, the monetary economy is still ~350x the material economy. The US GDP only represents ~0.33% of the payments made in the total economy.

Being able to see the big picture, makes the solution all the more obvious – payments need to be taxed NOT INCOME.

Basic Income Payments – Eliminating the Welfare Trap

Basic Income monthly payments for 18-69 year olds of $2,000 per month and 70+ year olds of $3,000 per month would be affordable.

The hurdle has always been how to create a basic income structure without increasing taxes. This is the whole point of FTT – the extra tax take would be from the parasitic financial economy, NOT from the productive economy.

Eliminating income tax would immediately give everyone a huge boost in their take-home pay. With the basic income payment each week added in, all wage earners would enjoy increases in disposable income.

In America with their huge income disparity, 90% of the country’s population would significantly improve their living standard.

The welfare trap and the fear of rampant socialism are the overarching concerns of the critics – IOW, how can you have a social welfare system that provides for the genuinely disadvantaged whilst not propagating an institutionalised multigenerational welfare trap?

In existing models, including within New Zealand (NZ) and the U$, when someone gets a job, they usually lose some or all of their existing benefits – as such this disincentives them from finding a job. Basic income models are the polar opposite – they incentivise beneficiaries to work.

The basic income model also encourages new business start-ups by allowing them the wherewithal and the confidence to try to establish a business that they may have always dreamed of.

Earned Income Credits

To encourage beneficiaries to work, earned income credits could be paid when they find a job. Coupled with the basic income payment this could add up to a very liveable income.

Based on Smiths figures, someone earning $15,000 would receive an extra $7,500 in earned income credits, and that bumps up to a total income of $46,500 per year when you add in basic income.

0.25% FTT was Modelled in France back in 2010

The brilliant Simon Thorpe from Toulouse in France ran the models completely independently from Smith in the U$. He came up with the exact same figure of 0.25%. Once again is is clear that in highly financially orientated economies this rate provides far more revenue to the Govt than all the other taxes combined.

In the U$ it is enough revenue to provide universal free basic health care, childcare credits, and free higher education. Within 7 years the U$ could pay off its rapidly spiralling public debt as well.

This model could work in NZ too, and if it was implemented along with Ellen Brown’s PBS (Public Banking Solution) NZ could become the sustainable socioeconomic miracle of the planet within one term of government.

Everyone is a Winner Except for the 0.1% Plutocrats

The most astonishing result that these models uncovered was the fact that all cohorts of Mainstreet benefited enormously – the only ones worse off were the thieves positioned at the apex of the human feed chain.

These were the increases in net income…

• A couple with no job – $15,000 – $47,880
• A retired couple – $30,000 – $71,820
• A couple earning $30,000 with a $100k mortgage – $18,764 – $81,953
• A couple earning $100,000 with a $300k mortgage – $51,243 – $137,630
• A couple earning $250,000 with a $500K mortgage – $145,718 – $280,588

But Won’t This Increase in Disposable Income Spell Massive Inflation?

As Smith explains…

“Inflation is always a risk whenever people have additional money to spend, but if the production capacity of the material economy, including that of foreign companies, is sufficient to support the additional spending there will be very little inflation – the key to minimizing inflation is to finance a diverse and robust supply chain.”

Furthermore, this new paradigm would encourage the return of a savings culture, and this would make low-interest rate liquidity available at a local level where moral hazard restraints would once more play a big part in making soundly based loans. Lower interest rates are disinflationary too.

Budget Surpluses Could Be Used to Generate Future Wealth

some examples…

1. Building up reserves for rainy days and natural disasters
2. Improving infrastructure
3. Funding desalinisation projects in countries with water challenges
4. Funding improvements in manufacturing capacity
5. Developing new high-tech technologies
6. Developing new value-added industries so as to maximise existing production
7. Funding projects that strengthen the nation’s general well-being, including education, health/mental wellbeing, arts and crafts, and cottage industries etc.

Summary

“The marvel of all of human history is the patience with which men and women submit to burdens unnecessarily laid on them by their governments.” – George Washington

BTW, Washington was the first, and sadly the last, independent candidate ever to become POTUS – incidentally, he was successful twice. These massive burdens have remained on the nation’s shoulders now for another 226 years – when on earth will our species ever learn?

Cheers to all
Colin Maxwell

Planned Part III — Banking 2.0

A discussion of the fact that ~97% of the money supply is already digital and created instantly out of thin air by the touch of a button. National and international implications and the financial instruments that could work in this brave new financial world without causing inflation and liquidity squeezes.

This is another reason why BANKING 2.0 needs to be run as a public utility and as the first key step in a transition to the PBS in which all tiers of banking are available as public utilities – this would not preclude privately owned banks, it just means that they would have to compete with the PBS model to remain in business.

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LA GUERRE EN UKRAINE VIDEO N° 25

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